The rationale for many of the tax changes affecting residential property in recent years has been a desire to create a level playing field between UK and non-UK purchasers. Efforts have also been made to attempt to control the rise of house prices in the UK to allow first time buyers to step on to the first rung of the property ladder.

Against this background, a new stamp duty land tax (SDLT) surcharge for non-UK resident buyers of residential property is to be introduced. The proceeds from the new surcharge are to be applied to measures to tackle rough sleeping.

Having first been announced by Theresa May at the 2018 Conservative party conference, a consultation document outlining the proposals was issued by HMRC and the Treasury on 11 February 2019.

In broad terms the principal provisions of the proposed surcharge are set out below:

  • Individuals: The surcharge will apply to non-UK resident individuals who purchase residential property in England and Northern Ireland. Scotland and Wales have their own separate regimes for taxing property purchases.

    It is proposed that rather than using the more complex statutory residence test, an individual will be treated as non-UK resident for the purposes of the surcharge if they spent fewer than 183 days in the UK in the 12 months ending with the date the transaction occurs. Where someone who has paid the surcharge then spends 183 days or more in the UK in the 12 months following the transaction then they will be eligible for a refund.Residence for these purposes means a day spent in the whole of the UK, not just days in England or Northern Ireland. Therefore UK residents who live in Wales or Scotland will not be caught by the surcharge.

  • Companies, partnerships and trusts: The surcharge will also apply to non-UK companies, partnerships and trusts. UK resident close companies which are under the direct or indirect control of one or more non-UK resident persons will also be subject to the additional charge.
  • The rate: It will apply to purchases of both freehold and leasehold residential properties and will be at a rate of 1% on top of existing SDLT rates. For higher value properties purchased by a non-UK individual owning another property, there will therefore be a top rate of 16% on the amount of consideration over £1.5million.

The legislation will be introduced in a future Finance Bill. There is currently no indication of when the surcharge might take effect.

It remains to be seen whether the proposal will have the desired effect on the property market. But purchasers and their advisers will find they have another layer of complexity to add to the SDLT calculation on purchases. From 1 March 2019, SDLT will need to be paid within 14 days of completion.