This is a further attempt to deter overseas investors from the UK property market, which the Government hopes will contribute to controlling house price inflation, making homes more affordable and helping more people get onto, and move up, the housing ladder.
The surcharge will apply to individuals, companies and trusts with the definition of a non-resident for each category having its own set of rules.
This could lead to some unexpected “non-UK resident” status determinations, as the rules are not in parallel with the standard rules for determining tax residence in the UK, in particular for individuals who have recently returned from what they may have considered to be a relatively short term absence from the UK for work or personal purposes; or even due to the global restrictions on movement created by the COVID-19 pandemic.
Subject to certain exceptions, the new Stamp Duty surcharge will apply if one or more purchasers is a non-UK resident. For this purpose an individual will be UK resident where they are present in the UK for at least 183 days during any continuous 365-day period in the “relevant period”. The “relevant period” begins 364 days before the effective date (usually completion) of the transaction and ends 365 days after that date.
It could be the case that, at the date of completion, an individual has spent less than 183 days in the UK throughout the relevant period so far, and in such a scenario, irrelevant of future intentions, it is understood that the SDLT return must be prepared, and liabilities paid, on the basis that the individual is non-UK resident. If UK residence status is then achieved in the remainder of the relevant period a reclaim of the additional 2% charge could be made.
Non-UK resident buyers who already own a property will pay the new 2% surcharge, where appropriate, in addition to the existing 3% charge levied on additional property purchases. This means that the top rate of stamp duty for additional property transactions is now 17%.
A company will be liable for the 2% surcharge if on the effective date of the chargeable transfer:
- It is non UK resident for UK corporation tax purposes; or
- It is UK resident for UK corporation tax purposes but it is a ‘close company’ which is controlled by one or more persons who are not UK resident (using the above SDLT test for residency) unless exemptions apply.
Amongst others, this will bring UK incorporated companies, which have been created as holding structures for UK property by offshore investors, into the scope of the charge by virtue of being controlled by non-resident shareholders. This is despite the fact that such an entity is subject to UK tax as a UK resident for all other purposes.
Particular care should be taken where one or more of the shareholders in an acquiring company is considered to be non-UK resident under these rules.
Whether or not a trust will be treated as non-UK resident for the purpose of the charge depends on the type of trust.
For bare trusts, the rules will depend upon the residence status of the beneficiary as determined by the above rules for individuals.
For an interest in possession trust, where an individual is entitled to occupy the dwelling for life, the position will be determined by the residence status of that individual.
For discretionary trusts, the residence status will be determined by the status of the trustees, following the rules for individuals as appropriate, although note that the relevant period runs from 364 days prior to the effective date to the effective date. Therefore presence in the UK following the effective date is not taken into account when determining a trustee’s residence status.
This change is intended to further increase costs and decrease appeal for overseas investors into the UK property market but it will also catch out some unsuspecting individuals and entities. All those investing in UK residential property should consider their residence status under these rules, which may be different to their residence status for other UK tax purposes, and take appropriate advice in the case of any uncertainty.