The Chancellor's Budget 2021 (3 March) was somewhat less dramatic than the expected increase in capital taxes. There was however no reprieve for the proposed weighty surcharge additions to the Stamp Duty Land Tax ('SDLT') regime in the UK applicable to non-UK resident purchasers (individual, trust or corporate).

There was good news for those looking to buy UK residential property with the SDLT "holiday" period on purchases up to £500,000 extended to 30 June 2021. There is no such good news for non-UK residents. This is owing to a new surcharge for SDLT imposed on transactions by non-UK resident purchasers completing on or after 1 April 2021 (with minor exceptions for properties that exchanged prior to 11 March 2020).

Changes to SDLT in the last decade

The SDLT surcharge follows a series of taxation changes in the past decade that potentially impact non-UK residents who own UK residential property. Changes include:

  • the introduction of the Annual Tax on Enveloped Dwellings ('ATED') in April 2013
  • non-UK resident Capital Gains Tax ('CGT') in April 2015 and extended as of April 2019
  • the change which saw shares in non-UK companies holding UK residential property fall within the scope of UK Inheritance Tax in April 2017.

The new SDLT surcharge is a flat 2% which will apply across all rates of SDLT, meaning that the maximum SDLT payable on any UK residential property transaction is an astounding 17%. The maximum rate of 17% would be relevant to a non-UK resident purchasing a property for in excess of £1.5million, who already owns another UK residential property (and were therefore already subject to the 3% SDLT surcharge for additional properties). The surcharge will also take the rate of corporate purchases of UK residential property (through a company) potentially to the maximum 17% (although with the usual exemptions, i.e. property rental business).

According to HMRC, the policy objective of the new SDLT surcharge is to 'make house prices more affordable, helping people get onto and move up the housing ladder'. In terms of the tax revenue raised from the surcharge, HMRC has said that this will be used 'to tackle rough sleeping'.

The non-UK residency test for individuals

HMRC's test for determining whether an individual is 'non-UK resident' differs from the 'Statutory Residence Test' which is otherwise applied to determine an individual's tax residency in the UK. Broadly, for the purposes of the SDLT surcharge, an individual will be deemed UK resident if he/she is present in the UK for at least 183 days during a continuous period which begins with the day 364 days before the date of the chargeable transaction, and ends with the day 365 days after the date of the chargeable transaction. The test of residency can lead to the ability to reclaim the surcharge element should a purchaser fulfil the residency test in the 365 days immediately following the purchase.

The non-UK residency test for joint purchasers

For joint purchasers, if one of the parties is non-UK resident this will generally have the effect of 'tainting' the transaction and the whole purchase price will therefore be subject to the 2% SDLT surcharge. However, there are special rules for spouses and civil partners who are living together (but where one party is UK resident and the other is non-UK resident) and who are purchasing a UK residential property in joint names. In these circumstances, the whole transaction can be deemed to be made by a UK resident buyer and, as a result, the SDLT surcharge would not apply.

Non-UK resident companies

For non-UK resident companies, the 2% SDLT surcharge will apply if, on the date of the chargeable transfer, the company is either:

  • non-UK resident for UK corporation tax purposes, or
  • subject to UK corporation tax but it is a 'close company' controlled by one or more persons who are non-UK resident (and it is not an excluded company, such as REITs or OEICs). For the purposes of determining whether a close company is controlled by one or more non-UK resident individual(s), the same 'new' residency test for individuals outlined above will apply.

There are a limited number of reliefs available against the surcharge i.e for those in crown employment abroad, a review of general SDLT relief provisions would be advisable in each circumstance.

Non-UK resident trusts

For trusts, if any of the Trustees is a non-UK resident then the trust is deemed non-UK resident for SDLT purposes. However, this does not apply to bare trusts or interest in possession settlements. As in common with most tax legislation the relevant individual whose residency must be assessed on any UK residential property purchase in these circumstances is the underlying beneficiary.

Your individual circumstances

This article aims to provide an overview of the 1 April changes. As with any changes to tax legislation each circumstance will need to be reviewed in detail, on a case-by-case basis, and on the individual facts. It is also worth noting that there are certain circumstances where the SDLT residency test could cause issues where clients may not immediately foresee there being a problem.

If you wish to discuss any of these issues further, please contact or International Private Wealth Team on the details below.

Originally published 10 March 2021.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.