1 April 2021 saw a significant change to the way non-UK residents are taxed for residential property purchases. Originally proposed in the 2018 Budget, a new surcharge for Stamp Duty Land Tax (SDLT) now applies for non-UK resident buyers of residential property in England and Northern Ireland.
Essentially, they will pay an additional 2% on top of the standard rates of SDLT payable by those living in the UK on transactions completed after 1 April 2021.
The rates will apply even if you intend to live in the property once you have completed and regardless of whether you are a first-time buyer or not.
How does the surcharge work?
The rates will apply to both freehold and leasehold property.
The rates will apply on freehold purchases if:-
- The value is £40,000.00 or more;
- If one or more buyers is a non-UK resident.
The rates will apply on leasehold purchases if:-
- The lease premium is £40,000.00 or more, or the relevant rent is £1,000.00 or more;
- One or more buyers is a non-UK resident;
- The major interest being acquired is not a lease with 7 years of less to run.
It applies to completed properties, in addition to buildings which are currently under construction or being adapted for use as a residential home.
How does the stamp duty work in conjunction with the current SDLT holiday?
If an individual who is classified as non-UK resident is looking to buy a home costing £450,000, they will currently pay reduced rates of SDLT due to the temporary stamp duty holiday, as follows:
Purchase completes on or before 30 June 2021:
They will pay 2% of £450,000, = £9,000
Purchase completes on or before 31 September 2021:
They will pay 2% on the portion below 250,000, and 7% on the potion above £250,000, = £19,000
However, when the stamp duty holiday is over, they will pay 2% on top of normal SDLT rates, as follows:
Purchase completes from 1 October 2021:
They will pay 2% on the portion below £125,000, 4% on the portion between £125,000 and £250,000, and 7% on the portion between £250,000 and £450,000 = £21,500
What is not included?
Some collective types of residential accommodation, such as care homes or school boarding accommodation, are exempt from the surcharge.
The surcharge will also not apply where a contract has either been:-
- Entered into and substantially performed before 1 April 2021;
- Exchanged before 11 March 2020, unless the contract relates to excluded transactions.
What is a UK resident for the purposes of the surcharge?
For the purposes of the surcharge, the UK’s statutory residence test does not apply. Instead, the purchaser must have been living in the UK for at least 183 days in the 12 months prior to the completion of the purchase. Interestingly, while the surcharge only applies to purchases in England and Northern Ireland, days spent living in any UK country count for the purposes of the residency test.
If you are married or in a civil partnership, and as long as you are not separated, then the transaction will be exempt from the surcharge as long as at least one of you is a UK resident.
A company is classed as UK resident if, at the time of purchase, it is considered UK resident for corporation tax purposes.
Partners in a business partnership are treated as joint buyers.
Trust are treated as non-UK residents if any trustee is a non-UK resident under the residence tests. However, this rule does not apply where the trust is either:-
- A bare trust
- One in which any beneficiary is entitled to remain in the property for life or entitled to income arising from the purchased property.
Are refunds available?
It is possible to claim a refund if you are an individual if you meet the residency requirements within the 12 months after completion.
Take legal advice
If you live abroad and are looking to buy a property, or are unsure of your UK residency status, let us help. Our expert Residential Property experts can advise you on any legal issues that may arise due to the new surcharge, and assist you smoothly through your property transaction.
Contact us via email at email@example.com or phone 0344 967 2505 and we will be more than happy to assist you.