On 11 February 2019, the government released a consultation
paper on the design of a 1% stamp duty land tax (“SDLT”) surcharge on non-UK
residents purchasing residential property in England and Northern Ireland.
The government’s stated policy is to help more people
into home ownership and, specifically, to counter the inflation of property
prices caused by purchases of residential property by foreign buyers. This
surcharge is intended to work alongside existing initiatives, such as an
increase in house building, higher SDLT rates for additional dwellings and the
introduction of first time buyers’ SDLT relief.
The surcharge will apply to freehold and leasehold
purchases and will be at a rate of 1% on top of existing SDLT rates, including
rates applicable to the rental element of leasehold property.
of “residential property”
“Residential property” for the purposes of the
surcharge will apply to “dwellings”, which are likely to be broadly defined as
buildings used as a dwelling; suitable for use as a dwelling; and are in the
process of being constructed or adapted for use as a dwelling.
The consultation paper has confirmed that mixed use
transactions (involving residential and non-residential property) will be
treated a non-residential and therefore not within the scope of the surcharge.
of “non-UK resident”
The surcharge will apply to all natural and
non-natural persons that do not reside in the UK, under the following
government will apply a new, simpler concept of “residence”, rather than relying
on the existing statutory residence test (“SRT”). The government proposes to
treat an individual as a non-UK resident if they have spent less than 183 days (meaning
midnights) in the UK in the 12 months preceding the effective date of the transaction
(usually the date of completion).
the case of joint owners, the surcharge will apply where any one of the
purchasers are non-UK resident. The same principles would apply to partnerships
purchasing freehold or leasehold residential property, as the partners are
treated as joint owners under existing SDLT rules.
the case of alternative finance arrangements, the residency status of the
person obtaining the finance will determine the application of the surcharge
rather than that of the financial institution providing the finance.
a non-UK resident pays the surcharge, there will be a mechanism to recover the
surcharge where they subsequently spend 183 days or more in the UK in the 12
months following the date of the transaction.
government proposes to base the residence test on the existing Corporation Tax
Act 2009 provisions, which means that a company will be “UK resident” if
incorporated in the UK, or its central management and control is exercised in
the residential property is purchased by a UK resident company, but is a “close
company” under the control of a non-UK resident (directly or indirectly), the
surcharge will nevertheless apply. A “close company” is a limited company controlled
by five or fewer participators or one which all the participators are also
unit trusts and contractual schemes
a bare trust purchases property that does not involve the grant of a lease, the
surcharge will apply if one or more of the beneficiaries is non-UK resident;
settlements and bare trusts involving the grant of a lease, if an individual
has a lifetime right to occupy or a right to income, the surcharge will apply
if the beneficiary is non-UK resident;
surcharge will otherwise be payable if the trust is non-UK resident, which is
determined according to existing income tax and capital gains tax rules.
The surcharge will not interfere with the operation of
existing SDLT reliefs “in most cases”, and the consultation paper confirms the
position in respect of the following reliefs:
- First-time buyers’ relief: where
a non-UK resident qualifies for first-time buyer’s relief, they will pay the
surcharge at 1% on the chargeable consideration between £0-£300,000 and SDLT at
6% (5% + 1% surcharge) on any portion between £300,000-£500,000.
- Multiple dwellings relief: this
relief will continue to be available where two or more dwellings are purchased in
single or linked transactions. The SDLT due is calculated on the average
residential property price rather than the total price paid for all dwellings.
The minimum rate of tax under the relief will be 1% of the total amount paid
for the dwellings, which will remain at the same level for those subject to the
- Alternative property finance relief:
this relief is available where an “alternative method” (as opposed to a conventional
mortgage) is used to finance the property purchase. In these circumstances, the
application of the surcharge will depend on the residence of the purchaser(s)
rather than the financial institution; nevertheless, the financial institution
will remain liable for paying any SDLT due.
- Collective enfranchisement: acquisitions
by right to enfranchise companies (RTE companies) under collective leasehold
enfranchisement rights have a relief in that the rate of SDLT is determined by
dividing the total consideration by the number of flats involved. Where the
purchaser acts as a nominee for the tenants, the tenants will be treated as
joint purchasers of the property. It follows that if one or more of the tenants
is non-UK resident, the surcharge will apply. Where the purchaser is not acting
as a nominee for the tenants, then the application of the surcharge is subject
to the purchaser’s residence.
- Seeding relief:
this relief is available for property authorised investment funds (“PAIFs”) and
co-ownership authorised contractual schemes (“CoACSs”). No SDLT is due where
property is transferred from one vehicle to another, provided that there is no
real change in the underlying ownership.
The paper is open for responses until 6 May 2019, and can be accessed here. There is currently no date for implementation, but the government’s aim is to include draft legislation in a future Finance Bill.
If you are an overseas national, or may otherwise be affected by these changes, please contact Kevin Healy or Imanpreet Suthar in our Residential Property team or Julie Man or Jeremy Duffy in our Private Wealth tean for advice tailored to your circumstances.
The contents of this newsletter are intended as guidance for readers. It can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law, or the content of any website referred to in this newsletter. © Mundays LLP 2019