The Property Planet Podcast
I was a special guest on The Property Planet podcast, in this episode, I discuss the ever-increasing complex world of Stamp Duty. We discussed the issues...
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Stamp Duty for non-UK residents includes a Stamp Duty surcharge of 2% for purchases of dwellings from 1 April 2021. The Finance Bill 2021 (see page 201 at the link) has been published and it introduces the special charge to SDLT for overseas buyers in the form of section 75ZA and Schedule 9A Finance Act 2003.
SDLT only applies to property in England and Northern Ireland so the charge does not apply in Scotland and Wales, although those jurisdictions are likely to apply a higher rate of stamp duty similar to the non-UK resident surcharge in due course.
Non-UK tax residents and other people and companies buying UK residential property should take professional stamp duty advice to ascertain whether they must pay the 2% overseas buyer’s stamp duty surcharge and whether they can make a refund claim once it has been paid. Special care should be taken with UK company purchasers of dwellings where the company has any non-UK resident shareholders because such companies can find themselves liable to the additional 2% rate. Conveyancers beware!
Yes, Stamp Duty Land Tax or SDLT (or Land and Buildings Transaction Tax or LBTT in Scotland and Land Transaction Tax or LTT in Wales) must be paid by non-UK residents buying land and buildings in the UK. From 1 April 2021, they pay a non-UK resident surcharge of 2% on top of the existing rates on purchases of dwellings in England and Northern Ireland.
The Stamp Duty surcharge applies if one or more purchasers is non-resident and for this purpose, 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 (Paragraphs 4(1) and (2) of new Schedule 9A FA 2003). There are special rules for co-purchasing spouses, partnerships etc.
For company purchasers, a company will be non-resident where the company is not UK resident for corporation tax or where the company is resident but is a close company and it meets the non-UK control test under paragraphs 9 and 10 of new Schedule 9A (so that it is a close company controlled by reference to non-resident participators only), and it is not specifically exempted.
The legislation allows for the repayment of the non-UK resident surcharge to individuals who become UK-resident after submitting their land transaction return. They have up to two years to amend their land transaction return in order to claim repayment of the non-UK resident SDLT surcharge.
The non-UK resident SDLT surcharge applies at a rate of 2% above the residential rates (including the higher rates for additional dwellings and companies, the 15% rate and the first-time buyers’ rates) on dwellings bought by non-residents.
This is in addition to the existing 3% higher rates surcharge which most foreigners already pay because they already own one or more dwellings overseas. So, SDLT for overseas buyers will usually be at a top rate of 17% of the purchase price.
This is either a flat rate of 17% in the case of the existing 15% higher rate on companies buying a dwelling (subject to the available SDLT exemptions) or in other cases, on the top slice of the purchase price above £1.5m.
The stated purpose is to deter foreign buyers from driving up UK property prices and to provide revenue to combat rough sleeping.
Yes, the SDLT surcharge can be avoided. Where a non-UK resident off-plan buyer flips the property to a UK resident, no surcharge will be payable because the flipper gets full sub-sale relief from SDLT. This widespread behaviour by foreign property speculators is a major driver of price increases but is tolerated by the UK government because it provides major residential property developers with a cheap source of development funding in the early stages of a property development project.
The most striking thing about the non-UK resident stamp duty surcharge is that it introduces the concept of tax residence into SDLT which was previously levied only on the basis of where the property in question is located. Also, the definitions of UK tax residence for SDLT are hybrids and complicated compared with the standard statutory non-UK resident tax definition for income and capital gains tax and companies.
First, it acts as a potential disincentive to overseas buyers given the existing top rate of 12% above £1.5m (or 15% if the purchase is of an additional dwelling).
Second, non-resident investors have traditionally been very active in the off-plan purchase market. They usually aim to flip their purchase contract at a profit to another buyer after holding the right to purchase for 2 or 3 years while the development is being built.
This market provides developers with valuable pre-completion funding and helps to secure project finance. At the moment, these flippers do not pay any SDLT because they never substantially perform or complete their contracts and it is left to the ultimate purchaser to pay the tax.
The stamp duty surcharge on non-UK residents does not necessarily affect flippers and may well encourage flipping and put off genuine non-UK investors from owning dwellings in England and Northern Ireland.
Another practical problem with the levy is that some non-UK resident investors are tempted to use UK resident proxy buyers who hold as nominee for the non-resident in order to get around the charge.
While this amounts to tax fraud, it can be difficult to detect and makes the effective operation of the levy difficult to enforce properly and unfair in that it only hits honest foreign investors and not those who hide their ownership behind a nominee name.
The 2% non-resident stamp duty surcharge poses a very difficult challenge to those carrying out property purchases. The statutory rules are so complex that even tax specialists find them challenging and the complicated rules around the hybrid UK residence tests and whether a UK resident company buyer is liable to the 2% surcharge will fox most property conveyancers. Where there is any element of non-resident involvement in a transaction including indirect company ownership, conveyancers play it safe and request that the 2% be paid unless the client has obtained specialist stamp duty advice that the 2% surcharge does not apply.
If you are considering the purchase of a dwelling in England and Northern Ireland at a time when you or your company or trustees are likely to be treated as a non-UK resident or you are using a UK resident company with an element of foreign ownership or you wish to claim a refund of the 2% non-resident surcharge, Patrick can advise you whether the surcharge will apply and if so, what you might do to mitigate the Stamp Duty surcharge on non-residents or to reclaim it if you do become UK resident. Use the contact form below to get in touch on a no-obligation basis.