Non-UK Resident SDLT Surcharge
HMRC have this week published the outcome of the consultation on the proposed new SDLT surcharge of 2% to be applied to purchases of land and buildings by non-UK residents.
No major changes to the proposals have been made as a result of the consultation, and the 2% surcharge will be brought into effect from 1 April 2021. There will, however, be transitional rules to exempt purchases where contracts were exchanged before 10 March 2020 (i.e. budget day).
The 2% will apply to both residential and non-residential purchases, and will be applied after all other surcharges and reliefs. While this should make calculation of the surcharge itself straightforward, identifying whether it applies in the first place may be more complicated.
Who Is UK Resident?
Individuals will be UK resident if they have been in the UK for 183 days in the twelve months ending on the date of purchase, and non-UK resident otherwise. While this would cover those coming to the UK from abroad, it would also mean that UK national temporarily leaving the country, and then buying a house on their return, could be subject to the surcharge.
This may give a different result to the Statutory Residence Test applied for Income Tax purposes, making some individuals subject to tax on their worldwide income as a UK resident, but paying the higher rate of SDLT as a non-resident!
Companies will be classed as UK-resident or not under the same rules currently in effect for Corporation Tax purposes. However, there will be ‘look through’ provisions for close companies (broadly, those with five or fewer shareholders) where the shareholders themselves will be treated as joint purchasers of the land in question
Where property is purchased by joint purchasers, the surcharge will apply if any one of these joint purchasers is non-resident.
This would include not only ‘standard’ joint purchases by individuals, but also those by partnerships, trusts, or close companies where the purchase could end up being subject to the surcharge as a result of just a single partner/trustee/shareholder being non-UK resident.
One relaxation of the rules for joint purchases made following the consultation applies to married couples/civil partners, where only one of the partners need be UK resident to avoid the surcharge. This would not, however, apply to unmarried couples in the same circumstances.
Refund of Surcharge
Where an individual is subject to the surcharge, but subsequently becomes UK resident within the next twelve months, they can apply for a refund of the surcharge paid.
This refund will be available where the taxpayer is resident for 183 days out of any 365-day period which includes the day of purchase, and therefore takes into account days in the UK before the purchase takes place. This is a more generous condition than the original proposals, which would have only looked at the 365 days following purchase, and in most case will also mean that a refund can be claimed much earlier
Anyone potentially within the scope of the surcharge should look to complete on purchases before the new rules come into effect on 1 April 2021. For residential property, this would also mean the transaction would qualify for the temporary reduced rates announced in the Summer Budget, which will last until 31 March 2021 – together, these could result in saving of SDLT at 7% for completing on 31 March instead of 1 April.
Anyone not able to complete their purchase before 1 April 2021 will need to assess their circumstances and determine whether the surcharge will apply to them. This will be especially important in cases where the purchaser is a non-natural person, and Leathers would be happy to assist in carrying out such a review.