As we approach the end of the stamp duty land tax (SDLT) holiday on residential property purchases in England and Northern Ireland – which was initially intended to end on 31 March but has been extended to 30 June in this month's budget – we also approach the 1 April 2021 start of the non-resident SDLT surcharge.
Since it was announced at the Conservative Party conference in September 2018, the proposed surcharge rate has varied between 1% and 3%, before finally being fixed at 2%. This additional 2% SDLT will apply to purchases of residential property in England and Northern Ireland from 1 April by non-resident individuals and non-natural persons, such as companies, trusts and partnerships. No equivalent charge has been proposed in Scotland or Wales.
A new residence test has been introduced for the purpose of the charge, which will apply in addition to the existing residential SDLT rates of up to 15%, so that the top rate for non-residents could be as much as 17%.
This will apply to residential properties such as apartments or houses, excluding student accommodation. The surcharge was only expected to apply to transactions comprising solely residential property, and not to mixed-use land transactions comprising both residential and non-residential property. However, late changes were made so that the surcharge can apply to mixed residential and non-residential transactions where multiple dwellings relief (MDR) is claimed in respect of the residential element.
Where six or more dwellings are acquired, the purchaser, therefore, will need to choose between treating the acquisition as non-residential and so applying the 5% SDLT rate, or claiming MDR but with addition of the 2% non-resident surcharge.
However, if a partnership acquires land and any one partner is non-resident, then regardless of their partnership share the entire acquisition would be subject to the additional 2% SDLT.
For individuals, the basic rule to ensure UK residence and so avoid the surcharge is to be present in the country for at least 183 days during the period beginning 364 days before the date of transaction and ending 365 days afterwards.
However, there are certain special cases where it is an individual purchaser's residence in the 12 months before the transaction that determines their residence status, including where the purchasers also involve a partnership, a company, or a unit trust. As this is a new concept of residence, previous analysis based on the usual UK income and gains tax residence rules cannot be relied on.
The rules are therefore complex, and can result in some unexpected outcomes. For example, an acquisition by a UK company that is owned in equal shares by a mixture of, say, six unrelated individuals, five from the UK and one not, should not attract the surcharge. A direct acquisition by the same six individuals in the same shares would be subject to the surcharge, however.
Careful consideration of the rules will be needed, and ideally this should be done before the transaction has completed. The filing deadline for the SDLT return and payment was recently reduced to 14 days from the date of completion for most residential purchases, and so there is little time to work through the rules after completion.