When Philip Hammond reconfirmed in the 2018 Budget the Government’s intention to introduce a 1% surcharge to Stamp Duty Land Tax for non-residents who purchase residential property in the UK, we assumed that it would be a fairly straightforward adjustment to the law (albeit an unwelcome one). What could be simpler – the rates just go up by 1% for those who are non-resident?
In the event, a 42 page Consultation Document has been published which, despite its stated aim of trying to make things as simple as possible, manages to do the opposite.
Here is a summary of the main points:
- No introduction date has been announced. The Consultation runs until May 2019, so it is unlikely that this measure will come into effect until later in the year. Perhaps Budget Day 2019, or even 1st April 2020?
- The Surcharge will apply only to Stamp Duty Land Tax, which covers England and Northern Ireland. No doubt the Scottish and Welsh Revenue Authorities will follow suit in due course.
- It will apply to non-residents and certain ‘non-natural persons’ – companies, trusts etc.
- The Consultation has grappled with the question of when a person is non-resident – after all, it is only non-residents who would be captured by this surcharge. However, rather than use the Statutory Residence Test which most people are broadly familiar with as the basis, the Government proposes to determine residence (for the purpose of the surcharge alone) using a different rule.
- You will be non-resident for these purposes if you have spent less than 183 midnights in the UK (including in Scotland and Wales) in the 12 months prior to the completion date. What does this mean?
- The concept of a ‘Tax Year’ is not relevant under these rules. This means that, in certain situations;
- It is possible to be resident in the UK under the Statutory Residence Test but non-resident for SDLT purposes.
- Equally, it is possible to be non-resident in the UK under the Statutory Residence Test but resident for SDLT purposes.
- In theory, it is possible that you move back to the UK and become resident under the Statutory Residence Test but are still in a period where you would be treated as a non-resident for SDLT purposes.
- To alleviate this last possibility, if you do go on to spend at least 183 midnights in the UK in the 12 months after the transaction date, you will be able to apply for a refund of the surcharge.
- The surcharge will see the rates typically applicable to SDLT rise by 1%, giving us a total of 4 separate sets of SDLT rates, as follows.
So, for someone buying a residential property for GBP 750,000, the potential outcomes are:
Proposals for Companies, Trusts and Partnerships
The proposed rules for ‘non-natural persons’ are somewhat more complicated and can be briefly summarised as follows:
- The surcharge will apply to non-UK resident companies and certain UK resident ‘close’ companies (i.e. companies which are controlled by no more than 5 participators).
- A new corporate residence test will be introduced. A company will be resident for SDLT purposes if it is either incorporated in the UK or, at the time the property is purchased, the control and management of the company is exercised in the UK.
- The surcharge will not apply to UK resident companies which are controlled by more than 5 directors.
- UK resident close companies will be within the surcharge if at least one non-resident person is in direct or indirect control of it (even if everyone else is UK resident).
- Whether a participator is resident or non-resident will be determined by the rules which apply to purchases by individuals.
- Where a company purchases a property for at least GBP 500,000 and certain conditions are not fulfilled, a flat rate of SDLT of 15% applies. Where that company is non-resident, the Government proposes to apply the 1% surcharge, taking the flat rate to 16%.
- If a partnership acquires a property and any of the partners are non-resident (per the test for individuals above), the surcharge of 1% will apply to the purchase.
- If a property is purchased by a bare trustee not involving the granting of a lease, the residence position of the beneficiary (or beneficiaries) will be considered. If any are non-resident, the surcharge will apply.
- Where the purchase does involve the granting of a lease (whether a bare trust or not), the trustees are treated as the purchasers. Where the property is purchased for a beneficiary to live in for life or to receive rental income, the beneficiary is treated as the purchaser. Otherwise, the surcharge will apply if the trust itself is non-resident.
- The only concession proposed is that a non-resident Crown Servant would be exempted from the surcharge.
- This would benefit those who are members of the armed forces, diplomats and civil servants on overseas postings, who continue to pay UK Income Tax on their earnings.
Moving to the UK
- Happily, the Government doesn’t want the surcharge to prevent people buying property who are coming to the UK to live and work.
- Consequently, where the surcharge applies (and it must be paid upon completion), a refund can be applied for where the purchaser has spent at least 183 midnights in the UK during the 12 months following the completion date.
- Where any of the joint purchasers are non-resident, the surcharge will apply to the whole transaction.
- In order to claim a refund, all of the joint purchasers must have spent at least 183 midnights* in the UK during the 12 months following the completion date.
- Where a property is purchased in the sole name of a UK resident, but their spouse or civil partner is non-resident, the surcharge will not apply.
First Time Buyers Relief
- Where a non-resident is entitled to First Time Buyers Relief (0% SDLT on the first GBP 300,000), the initial GBP 300,000 will be charged at 1%.
Multiple Dwellings Relief
- Where two or more properties are purchased in a single or series of linked transactions, the SDLT charged can be calculated based upon the average residential property price, rather than the total price paid, subject to a minimum SDLT charge of 1%. The surcharge will apply a 1% levy on the average purchase price over and above MDR charge, where the purchaser is non-resident.
- The purchase of mixed use properties (i.e. qualifying as both residential and non-residential) are unaffected by the surcharge.
- Purchases of 6 or more separate properties are treated as non-residential and are unaffected by the surcharge.
We can expect to see a robust response to the consultation from interested parties. In my experience, consultation proposals are only ever tweaked slightly following input from stakeholders, so I would expect to see these measures enacted as proposed in large measure.
However, there is a positive. The Government has also announced that revenues raised by this Surcharge will be put towards measures to tackle rough sleeping, in an effort to halve the number of rough sleepers by 2022. I don’t think anyone would argue with that.
The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
*There is no mention of the purpose of the presence in the UK, so the concept of excluding midnights of presence where there are qualifying ‘exceptional circumstances’ does not apply here.