UK: SDLT And Cross-border Considerations For Individuals Purchasing Residential Property

Stamp Duty Land Tax (SDLT) is a tax charged on the purchases of property in England and Northern Ireland. The rate charged is based on the consideration paid for the property, and goes through the relevant brackets. There was a period during 2020 and 2021 that the rates were reduced in order to encourage the property market during the pandemic lockdowns, but they are now back to what they used to be, namely:

From 1 April 2016, a higher rate of SDLT has applied to the purchase of an additional residential property. The higher rate is an extra 3% on top of the rates in force at the time (the Higher Rate).The aim behind this was to tackle increases in UK house prices.

As part of this increase was put down to foreign investment in UK property, a more recent measure, which applied with effect from 1 April 2021, applies an additional 2% SDLT surcharge when a property is bought by a non-UK resident. This surcharge is charged in addition to the Higher Rate, meaning the total rate of SDLT applied to a purchase could increase by 5% (the 3% from the Higher Rate plus the 2% from the surcharge), as follows:

Who is non-resident?

The test for residence is whether a person spends at least 183 midnights in the UK in a continuous period of 365 days. The period in question can start 364 days before the "effective date" (usually the completion date) and ends 365 days after the effective date. This is interesting as it is therefore possible for someone to be non-resident at the time of completion, but become UK resident thereafter. If that is the case, the additional 2% must be paid, but can be reclaimed on the individual becoming UK resident.

There are separate rules for other types of buyers, such as companies and trustees.

Generously, if spouses or civil partners are buying the property as a couple, and one of the couple is non-UK resident and the other UK resident, then, provided certain conditions are met, both parties will be treated as UK resident, and so escape this surcharge.

When does the Higher Rate apply?

The premise sounds simple: if you own a property already, you pay extra to purchase an additional property. This applies irrespective of the residence or domicile status of the buyer, and irrespective of where in the world that existing property is, e.g. whether you are a UK resident with only a property abroad, or a non-UK resident with a property abroad. Provided you are purchasing a property in England or Northern Ireland, the Higher Rate may apply. The Higher Rate therefore affects non-UK resident purchasers in the same way as it does UK resident purchasers.

This can lead to queries if overseas property is held through a structure not recognised in English law, such as a French usufruit. In such cases it is necessary to determine whether or not the overseas interest is a "major interest" under the law of that country. That can be complicated to do and may require careful analysis.

There are also certain rules to be aware of, such as the fact that the Higher Rate does not apply if one is replacing a main residence (or does so within three years); or that properties inherited by way of succession do not count provided they are sold within three years of the death. Also, in contrast to the non-resident charge, purchasing spouses or civil partners will suffer the Higher Rate if only one of them already owns a property.

In practical terms, it is important to bear in mind that the deadline to submit an SDLT return and pay any SDLT due is now only 14 days from completion. Clients may therefore want to receive their advice in good time in order to avoid late payment and filing penalties.

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.