The title to this article refers to the recent actions of the UK government in relation to Stamp Duty Land Tax (“SDLT“). The government has given away, with the current SDLT holiday provisions (which are set to come to an end on 31 March 2021), but is set to take, with the introduction of its much anticipated SDLT surcharge for foreign purchasers of residential property on 1 April 2021. What follows are answers to some common questions in relation to the new “SDLT surcharge” provisions based on the published draft legislation.
- Who is a foreign purchaser for the purposes of the surcharge?
Non-UK resident individuals and non-natural persons (including companies, trusts and partnerships) purchasing residential property (freehold or leasehold) in England and Northern Ireland.
The surcharge applies to the purchase of properties in England and Northern Ireland only (Scotland and Wales having their own equivalent SDLT charges) but residence in any part of the UK (including Wales and Scotland) is relevant when determining eligibility for the surcharge.
- What will the rate of the SDLT surcharge be?
We previously reported that the rate of the surcharge was going to be 1% but, in March 2020, the Chancellor, Rishi Sunak, announced that the surcharge would instead be set at 2% and this has since been confirmed in the draft legislation.
- Who qualifies as a ‘non-resident’ individual?
A simplified test of residence will determine whether an individual is a “non-resident” purchaser as compared to the more complex statutory residence test which is used to determine residence status for income and capital gains tax.
Broadly, anyone who spends fewer than 183 days in the UK in the twelve months ending with the effective date of the property transaction (i.e. the purchase) occurs will be classified as “non-resident” and subject to the surcharge. This means that an individuals could in theory be UK resident for income tax purposes but non-UK resident for SDLT purposes.
- How will non-UK resident individuals moving to the UK be treated?
Purchasers who are treated as non-UK resident at the time of purchase will be able to claim a refund for the surcharge if they are in the UK for 183 or more days in the twelve months following the date of the purchase of the property. This is based on actual days spent in the UK and not their intention at the time they purchase the property.
- How will the residence status of companies be determined?
The test to determine corporate residence is borrowed largely from the test of company residence used for corporation tax purposes. This broadly means that corporates that are managed and controlled outside the UK will be subject to the surcharge.
- How will the surcharge interact with existing SDLT reliefs and rules?
The surcharge will apply on top of the existing SDLT rules and existing tax rates which apply to the purchase of residential property. In most cases this means that existing SDLT reliefs (i.e. multiple dwellings relief) and specific rules (i.e. those in relation to mixed use transactions and purchases of six or more dwellings) will continue to be available. The surcharge does not extend to the purchase of non-residential (i.e. commercial) property and land.
- How will joint purchasers be treated?
As a general rule, if a property is jointly purchased, all purchasers must be UK resident (or deemed to be) otherwise the surcharge will be levied.
For married couples and civil partners living together at the time of purchase where only one of the spouses or civil partners is treated as UK resident, the non-UK resident one will be deemed to be UK resident (subject to certain conditions) and the surcharge will not apply.
- Which transactions will be subject to the surcharge provisions?
The surcharge will apply to all transactions where the purchase (i.e. completion) takes place after 1 April 2021. Limited transitional rules will apply so that the surcharge should not apply to a transaction where contracts were exchanged before 11 March 2020.
The rules around the new SDLT surcharge are inevitably complex and their interaction with the residency rules for income and capital gains tax purposes will need to be considered. Professional advice will therefore be required to ensure the correct rate of SDLT is paid at the time of purchase, and potentially the surcharge reclaimed in due course. For more information please contact your usual contact at Wedlake Bell or Matt Braithwaite.