A 2% SDLT surcharge in addition to the normal and higher rates of SDLT, up to a maximum of 17% will apply for non-UK residents purchasing residential property in England and Northern Ireland from 1 April 2021.
So overseas buyers will need to check whether they will be considered as “non-resident” and, if so, whether their particular purchase will be caught so that they can consider how to factor this into their bid.
Background
The government first announced its intention to consult around a 1% surcharge in the Autumn 2018 Budget. A 3% surcharge was then proposed in The Conservative party manifesto for the 2019 election. The 2% rate was then announced at the Spring 2020 Budget that would be introduced via the Finance Bill 2021; the requirements for the additional 2% charge to apply will be set out in new Schedule 9A of Finance Act 2003
Application; the devil is in the detail
The surcharge will apply to both freehold and leasehold properties. For brand new leasehold properties this may also increase the amount of SDLT that will be payable on rents set in the new lease.
The surcharge will not apply when buying a second hand leasehold property that has 21 years or less to run at the date of completion or to a purchase of either freehold or leasehold property that itself is subject to a lease with an unexpired term of more than 21 years (so where you will not be receiving vacant possession on completion or within that 21 years period).
Nor will it apply unless the chargeable consideration for the transaction is £40,000.00 or more.
It should not apply to acquisitions of mixed-use property or non-residential property. Similarly, the acquisition of six or more dwellings (where multiple dwellings relief is not claimed) is treated as a non-residential transaction so will not be caught unless the buyer is to opt to treat it as residential so as to make use of multiple dwellings relief.
Individuals
This will apply to individuals buying together where one them is “non-resident” unless they are married or in a Civil Partnership, living together and neither of them are acting as the trustee of a settlement.
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 of the transaction and ends 365 days after that date. Part 3 of Schedule 9A sets out the residence test for individuals, and special rules for crown employees
Companies
A company will be non-resident where the company is not a UK resident for corporation tax under chapter 3 or part 2 of the Corporation Tax Act (2009). For businesses with complex ownership structures, more time and extra costs may be involved in assessing their residence status.
Part 4 sets out the residence test for companies, including special rules which apply to certain UK resident companies under the direct or indirect control of non-UK resident persons
Surcharge
The 2% will apply in addition to the SDLT ordinarily payable i.e.:
- The 3% higher rates for buyers of additional dwellings.
- The 15% higher rate for high-value residential properties acquired by companies and other non-natural persons.
- The rate applied to the value of rents for leases over residential property.
- The rates where first time buyers’ relief applies.
- The 15% rate on a collective enfranchisement where the buyer is a company or other non-natural person and the average price of the qualifying flats exceeds £500,000.
Transitional provisions
Contracts entered into and substantially performed before 1 April 2021 are not subject to the surcharge.
For contract entered into before 11 March 2020 they will not subject to the surcharge unless classed as “excluded” being where:
- The contract is varied, or rights assigned in respect of it.
- The transaction is pursuant to the exercise of an option, pre-emption right or similar right.
- Following the contract there is an assignment, sub-sale or other transaction relating to it that means a third party is entitled to call for completion of the contract.
Conclusion
So overseas buyers may be surprised to find that their proposed purchase is no in fact caught by the surcharge it needs to be considered carefully.