What has changed?
Since 1 April 2021, there is a 2% surcharge on top of the usual rates on purchases of dwellings in England and Northern Ireland by non-UK residents.
This surcharge applies on top of the 3% surcharge for additional dwellings or dwellings purchased by companies.
Purchasers will therefore need to confirm if they are non-resident on their SDLT return.
Policy objective
This was part of the Conservative Party’s manifesto for the 2019 election. The Policy Paper published 21 July 2020 states that introducing the surcharge will help make house prices more affordable, helping people get onto and move up the housing ladder in line with wider objectives on homeownership. They say the revenue raised will be used to tackle rough sleeping.
Timeframe
The surcharge will apply to transactions with an effective date on or after 1 April 2021.
There is a “transition period”:
- If a contract was substantially performed before 1 April 2021 the surcharge will not apply, even though legal completion takes place later. This is because the substantial performance will have triggered an earlier effective date.
- If a contract was exchanged before 11 March 2020 then the surcharge will not apply even if completion takes place on or after 1 April 2021, unless the contract is varied, assigned, there is a sub-sale to another buyer, or the transaction is the exercise of an option/pre-emption.
Who will be subject to the surcharge?
Purchasers of a major interest in one or more dwellings in England and Northern Ireland who are not UK resident.
What does “non-resident” mean for SDLT purposes?
Individuals
Individuals are treated as UK resident if the individual is present in the United Kingdom on at least 183 days during any continuous period of 365 days that falls within the “relevant period”. The “relevant period” means the period that:
- begins with the day 364 days before the effective date of the chargeable transaction, and
- ends with the day 365 days after the effective date of the chargeable transaction.
If an individual does not qualify as UK resident at the date of the transaction, but subsequently becomes UK resident within the relevant period, they will be entitled to reclaim the surcharged SDLT by amending the SDLT return within 2 years beginning with the day after the effective date of the transaction.
There is an exception for individuals who are Crown employees.
If the purchase is joint between two spouses or civil partners who normally live together, one of whom is UK resident and one of whom is non-resident, the surcharge will not apply.
The “special rule” for individuals
A special rule applies to assess the residency of an individual for the purposes of purchases by companies, partnerships, unit trust schemes and settlements (as described below):
In these special cases, an individual is UK resident if the individual is present in the United Kingdom on at least 183 days during the period that:
- begins with the day 364 days before the effective date of the chargeable transaction, and
- ends with the effective date of the chargeable transaction.
In other words, the individual will not be treated as UK resident if they can only meet the criteria because of their circumstances after the effective date; the test only looks backwards and not forwards.
Companies
A company is treated as non-resident if either:
- It is not UK resident for the purposes of the Corporation Tax, or
- It is UK resident for the purposes of Corporation Tax, but it is a close company (i.e. a company with five or fewer participators) which is controlled by a non-resident.
For example, a UK subsidiary with an overseas parent would be treated as non-resident for the purposes of the surcharge. The “special rule” will apply in the case of an individual participator.
The following types of companies are excluded from the surcharge:
- a PAIF;
- a body corporate that is a 51% subsidiary of PAIF;
- a company UK REIT;
- a company that is a member of a group UK REIT.
Partnerships
Where the purchaser is a partnership, SDLT treats the partners themselves as the purchaser. Therefore, if any of the partners in the purchasing partnership are non-resident (individuals or companies) then the non-resident surcharge will apply to the whole transaction. The “special rule” will apply in the case of an individual partner.
Trustees of a Bare Trust
The residency test is applied to the beneficiary of the trust rather than the trustee. (Including for the grant of a lease, for which the trustee is treated as the purchaser for SDLT purposes).
Trustees of a Settlement
For SDLT, any trust which is not a bare trust is a settlement and the trustees are treated as the purchasers so the residency test applies to the trustees of the settlement. The “special rule” will apply in the case of an individual trustee.
The exception to this is where the beneficiary of the settlement will have a life interest in the purchased dwelling (to occupy or to receive income from). In that case the residency test will apply to the beneficiary.
CoACS
A co-ownership authorised contractual scheme will be treated as UK resident unless it is constituted, authorised or managed under the law of an EEA state (other than the UK).
Unit Trusts
The residency test will apply to the trustees of a unit trust scheme. The “special rule” will apply in the case of an individual trustee.
Mixed supplies and multiple dwellings
The surcharge only applies to the residential rate. Mixed supplies and supplies of six or more dwellings in one transaction may be subject to the non-residential rate which may be preferable for non-residents, particularly where the 3% surcharge for non-individuals and purchasers of additional dwellings will also bite.