A prospective purchaser of property in the UK will ask what taxes they will encounter. One of the taxes is Stamp Duty Land Tax or shortly known as “SDLT” . You must pay SDLT if you buy a property or land over a certain price in England and Northern Ireland. The tax is different if the property or land is in Scotland or Wales.
In July 2020 the UK government published draft legislation that saw a 2% Stamp Duty Land Tax surcharge (“the surcharge”) being applied to purchases of residential property in England and Northern Ireland from 1 April 2021 by overseas buyers. Also introduced was a new residency test linked to the timing of a transaction and dependent upon whether the purchaser is a UK resident or non-resident.
The surcharge will not apply to commercial property.
So, how does it work?
The surcharge will be levied on top of all other SDLT payable, including the higher levels of SDLT introduced in April 2016 on second homes and buy-to-let purchases. Looking at this in simple terms:
| Property value or lease (with over 21 years left to run) premium or transfer value | Residential property SDLT payable by UK residents | Residential SDLT assuming a second property (or more) – a surcharge of +3% | Non-resident – a surcharge of +2% |
| £40,001 to £125,000 | zero | 3% | 5% |
| the next £125,001 – £250,000 | 2% | 5% | 7% |
| the next £250,001 – £925,000 | 5% | 8% | 10% |
| the next £925,001 – £1.5 million | 10% | 13% | 15% |
| the remaining portion above £1.5 million plus | 12% | 15% | 17% |
To which non-UK residents will the rules apply?
There are a number of exclusions that apply and businesses with complex ownership structures will require careful consideration when assessing whether the surcharge applies.
At their simplest, the rules will apply to the following:
- if the purchaser (or any one of the purchasers) is an individual outside the UK for at least 183 days out of a 365-day period beginning 12 months before the transaction and ending 12 months after (in which case the surcharge is payable at the point of acquisition but a refund can be applied for);
- certain unit trusts and Jersey Property Unit Trust, having regard to the status of the trustees;
- a company not resident in the UK for corporation tax purposes;
- a company that is resident in the UK for corporation tax purposes but is a close company and controlled by a non-UK resident individual(s) and is not a UK real estate investment vehicle nor group member of one, nor a Jersey property unit trust;
- a partnership where one of the partners is treated as a non-resident; and
- where UK property is to be held in a trust, the residential status of the beneficiary is considered, failing which the residency tests are applied to the trustees themselves.
It is important to note, the surcharge will apply to a transaction where any one of the joint purchasers is a non-UK resident. This applies to a spouse too. If buying jointly but one spouse works outside of the UK, the surcharge will apply.
Land transactions where contracts are exchanged before 10 March 2020, but not completed or substantially performed until or after 1 April 2021, are likely to be subject to transitional rules
What is not covered?
The surcharge does not cover:
- purchasers claiming multiple dwelling reliefs (requiring the purchase of no less than 6 dwellings).
- overseas buyers buying off-plan who then “flip” the property onto a UK resident who enjoying sub-sale relief from the surcharge.
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