A two-per cent surcharge on stamp duty for non-UK resident property buyers kicks in next month.
From 1 April rates of Stamp Duty Land Tax (SDLT) will apply to purchasers of residential property in England and Northern Ireland who are not resident in the UK.
The rates are two percentage points higher than those that apply to purchases made by UK residents. This surcharge applies to purchases of both freehold and leasehold property, as well as increasing the SDLT payable on rents on the grant of a new lease.
The surcharge also applies to certain UK resident companies that are controlled by non-UK residents.
Where there are joint purchasers if any one of them is not a UK resident, the additional surcharge will apply. The legislation is currently draft so could change before enactment.
Individual buyers are non-UK resident in relation to the transaction if they are not present in the UK for at least 183 days during the 12 months before their purchase.
Although the surcharge only applies to non-resident transactions in England and Northern Ireland, days spent in the whole of the UK count for the purposes of the residence test, not just days spent in England or Northern Ireland. An individual is present in the UK on a particular day if they are situated in the UK at the end of that day.
An individual is UK resident for SDLT purposes if in the period starting 364 days before the acquisition of the property and ending a year after, there was a continuous period of 365 days in which the individual was in the UK for 183 of them.
So if you’re in the UK for a year before the acquisition, you’ll be SDLT UK resident even if you emigrate the day after.
If you never stepped foot in the UK before the acquisition but plan to move and stay here after, then you can still count as a UK resident. You have to fill in the SDLT return as a non-resident, but within two years can submit an amended return once you’ve clocked up your 183 days in the UK.
Because the SDLT definition of residence status is different to that used for general tax purposes, if you live in more than one country, you can be UK tax resident paying UK tax on your worldwide income but nevertheless not a UK resident for the SDLT rules.
A company is SDLT non-UK resident if it is non-UK resident for corporation tax purposes, normally if it is incorporated or managed and controlled abroad. But a UK company can be regarded as SDLT non-resident if it is controlled by five or fewer shareholders and also controlled by non-UK residents.
For this test, the definition of a UK resident individual is different to the one above. It is someone who has been in the UK for 183 days in the year before the transaction. Days spent in the UK after the acquisition aren’t considered.
The surcharge applies only to the residential SDLT rates. Where a mix of residential and commercial property is acquired, this can under existing rules be taxed at the commercial SDLT rates and in this case the surcharge won’t apply.
Residential property is defined as a building or part of a building used or suitable for use as a dwelling. It includes buildings being constructed or adapted for residential use.
Communal accommodation such as student accommodation, care homes and hotels and inns is generally excluded from the definition.
The surcharge also doesn’t apply to leases less than seven years, nor to properties acquired for less than £40,000.
More information on substantial performance of a contract can be found in the Stamp Duty Land Tax manual.
Contact our experts for advice on personal taxation matters.