99: Stamp duty surcharge for overseas property buyers
As we reported earlier this year here, the stamp duty surcharge for overseas buyers of property in England and Northern Ireland, first announced at the 2018 conservative party conference, was one of the few tax measures to feature in Rishi Sunak’s first Budget on 11 March 2020.
The 2019 consultation document proposed that the surcharge would be set at 1% (a 3% rate had been mooted at one point) but the Chancellor confirmed that it would now be set at 2%. This means that for higher value properties purchased by a non-UK resident individual owning another property, there will therefore be a stamp duty land tax (SDLT) charge at a top rate of 17% on the amount of consideration over £1.5 million.
The draft legislation has now been published and as expected this closely follows the outline from the consultation document.
The surcharge will apply to a ‘non-resident transaction’, being a purchase of a major interest in a dwelling by a non-resident person where the chargeable consideration for the transaction is £40,000 or more.
In determining individual residence for the purposes of the surcharge an SDLT specific residence test will be used rather than using the statutory residence test which applies for other tax purposes.
An individual will be ‘UK resident’ in relation to a chargeable transaction if they are present in the UK on at least 183 days during any continuous period of 365 days that falls within the relevant period. The relevant period means the period that (a) begins with the day 364 days before the effective date of the chargeable transaction, and (b) ends with the day 365 days after the effective date of the chargeable transaction. Someone might therefore not meet the test at the time of the transaction but could do so afterwards so a detailed record of days spent in the UK would be required. Internationally mobile individuals will be well used to this sort of record keeping.
The surcharge will apply to purchases by non-UK resident companies, trusts and partnerships as well as by individuals.
Purchasers who do not meet the SDLT residence test at the time of a transaction will need to pay the surcharge but if they subsequently meet the residence test within the relevant period will be able to amend their SDLT return and claim a refund. This must be done within two years of the transaction.
If there are joint purchasers and one of the purchasers is non resident that will ‘taint’ the transaction for the purposes of the surcharge. However, if spouses or civil partners jointly buy a dwelling, where one is non-UK resident and the other is UK resident, the non-UK resident will be treated as being UK resident for the purposes of the surcharge provided that they are living together.
If the purchaser is a trustee of a settlement and a beneficiary is entitled to either occupy the dwelling for life or to income from the dwelling, the beneficiary is treated as the purchaser and the rate of SDLT will be determined in accordance with their particular circumstances.
The charge will apply to land transactions with an effective date of 1 April 2021 or later. Transitional rules apply to transactions where contracts were exchanged prior to 11 March 2020 but complete or are substantially performed on or after 1 April 2021. Transitional rules may also apply where a contract is substantially performed on or before 31 March 2021 but does not complete until 1 April 2021 or later.
Many factors will of course be under consideration when someone is thinking of buying or selling a property and SDLT is just one of them. However those actively looking to purchase a property might want to do so ahead of the new surcharge if they can. Although SDLT is paid by the purchaser, owners of properties in prime areas (where prospective purchasers may be more likely to come from outside the UK) might consider selling before April 2021 as the prospect of an increased SDLT burden could affect the offers being made.