Following an announcement in the Autumn Budget, a consultation has now been launched regarding a 1% surcharge on freehold and leasehold purchases of residential property in England and Northern Ireland by non UK residents. This extra 1% would apply on top of existing Stamp Duty Land Tax (SDLT) rates, including the higher rates for second properties and corporate buyers. This would increase the highest rate for non-residents to 16%. The surcharge will apply if any one of joint purchasers is non-UK resident.
For individuals, it is proposed that rather than using the normal definition of residence under the statutory residence test, a bespoke test will apply so that individuals will be non-UK resident for the purposes of the surcharge if they spend fewer than 183 days in the UK in the 12 months ending with the effective date of completion. The rationale behind this appears to be that SDLT is a transactional tax that is levied purely on the occasion of a property purchase, so it would not be appropriate for the surcharge to depend on the purchaser's residence for a whole tax year, particularly as in that case the position would not be ascertainable until the end of the tax year. Individuals will be able to claim a refund if they spend 183 days or more in the UK in the 12 months following the transaction.
For companies the residence test will be based on the current statutory test which broadly means that companies will be resident in the UK for the purpose of the surcharge if they are incorporated in the UK or, at the time they acquire residential property, their central management and control is exercised in the UK. In addition, a UK resident close company will be liable to the surcharge if, at the point it acquires residential property, it is a close company under the direct or indirect control of one or more non-UK resident persons.
Where a dwelling is acquired by trustees of a bare trust or a settlement under which an individual beneficiary has a lifetime right to occupy, or the right to income, the surcharge will apply if the beneficiary is non-UK resident according to the test for individuals outlined above. For other trusts the trustees' residence status will be determined using an adapted version of the usual tests, for example taking into account the residence status of individual trustees in the 12 months ending with the date of the transaction, rather than in a particular tax year.
There is no definite suggested introduction date yet and the direction taken and, indeed, whether it proceeds, will depend both on the consultation responses and the wider political climate. There is some risk that charging non-residents a different rate to residents may fall foul of EU law, to the extent the UK continues to be bound by it.
In practice, this SDLT surcharge will add additional complexity and cost to what has already become an increasingly complex system and for conveyancers, the job of arriving at the right rate of tax will become even more difficult.