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2% non-UK resident surcharge for Stamp Duty Land Tax

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The coming into force of the 2% non-UK resident surcharge on 1 April 2021, adds further complexity to the acquisition of residential properties.

The new surcharge must be considered alongside issues associated with the 3% additional dwelling surcharge, the 15% flat rate charge, multiple dwellings relief (and the possibility of non-residential rates applying to the acquisition of 6 or more dwellings) and the numerous full or partial exemptions and reliefs available.

General provisions

Subject to certain transitional provisions, “non-resident transactions” with an effective date on or after 1 April 2021 are caught by the 2% surcharge. This surcharge applies in addition to the usual residential rates, including the additional 3% rate.

What is a “non-resident transaction”?

A transaction is a “non-resident transaction” if all of the following conditions are satisfied:

  • the buyer (or, where there is more than one buyer, at least one of the buyers) is “non-UK resident” in relation to the transaction;
  • the main subject matter of the transaction consists of a major interest in a dwelling (or dwellings);
  • the interest in the dwelling is not a lease with an unexpired term of 7 years or less; and
  • the chargeable consideration is £40,000 or more, or the annual rent is £1,000 or more.

Who is a “non-UK resident” buyer?

If the buyer is an individual:

A non-UK resident buyer is one who does not meet the test to be UK resident.

Where all of the buyers are individuals, each individual is UK resident for the purposes of the 2% surcharge if they are present in the UK on at least 183 days in a continuous 365-day period beginning 364 days before the effective date of the transaction (the “backward looking test”) and ending 365 days after the effective date (the “forward looking test”). Each buyer only has to satisfy one of those tests, they don’t need to meet both.

Where only the forward-looking test applies, the 2% surcharge must be initially paid and a refund of the surcharge can be claimed once the buyer(s) become UK resident. The refund is claimed by amending the SDLT return, which can be done at any time before the end of 2 years beginning with the effective date of the transaction.

Where HMRC require evidence to show that an individual is present in the UK, HMRC have indicated that information such as bank statements, work diaries/timesheets, mobile phone bills, utility bills and club memberships may be suitable to provide evidence of residence. Particularly where a buyer intends to be resident in the UK after the transaction and claim a refund of the surcharge, the buyer would be well advised to retain evidence of residence in case of enquiry from HMRC.

Where there are two or more buyers of a dwelling that are (or include) spouses or civil partners who are living together, both will be treated as UK residents if only one of them satisfies the UK residence rules.

If one or more of the buyers is an individual and other buyers include a company or the trustee of a unit trust scheme, or the buyer is acting as an individual in a partnership or as a trustee, then to be UK resident the individual buyers must be present in the UK on at least 183 days during the period beginning 364 days before the effective date. In the case of a mixed acquisition by individuals and  company/trustees it is important to note that the test is backward looking only, i.e. if one of the individual buyers failed the backward test, it would not be possible to “cure” this by meeting the forward looking test at a later date. The company/trustee must also meet their relevant UK residence test.

If the buyer is a company:

Complex rules apply for determining whether a company is non-resident for the purposes of the surcharge. A non-UK resident company is broadly one which is not UK resident for the purposes of corporation tax, or which is UK resident for corporation tax purposes but is a close company controlled by one or more persons who are not UK resident.

It is important to note that even if the company is a UK-registered company, it may still be subject to the surcharge. The residence test looks past the company’s place of incorporation and considers the residence of the individuals/companies controlling the purchasing company. A simple example of a company that was non-UK resident for these purposes would be a UK registered limited company which is controlled by two non-UK resident individual shareholders.

Other types of buyers:

Separate rules apply where the buyers include, or the transaction involves, co-ownership authorised contractual schemes, unit trust schemes, partnerships, trustees, and/or alternative property finance.

Example calculations using the 2% non-UK resident surcharge:

Sole purchaser

X purchases a freehold property for £450,000 in England on 10 May 2021. X is present in Wales from 22 March 2021 onwards. Although the surcharge only applies to property in England and Northern Ireland, days spent anywhere in the UK count for the purposes of the residence test.

As at the effective date of the transaction, X has not been present in the UK for 183 days and so the SDLT return must be prepared on the basis that the 2% surcharge applies. Given that X is continuing to be present in the UK after the effective date of the purchase, X will satisfy the requirement of being present in the UK for 183 continuous days a few months after completion, at which point X can apply for a refund of the 2% surcharge.

Multiple individual purchasers

F, G and H are individuals entering into a 250-year lease of a residential property on 8 August 2021. Between 9 August 2020 and 8 August 2021, F and G spent 200 days in the UK. H was present in the UK during the 10 days prior to 8 August 2021, and remains in the UK after that date.

Both F and G are UK resident at the effective date. H is not yet UK resident at the effective date but becomes UK resident during the period of 365 days after the effective date. Given that at the effective date of the transaction only F and G met the residence conditions, the transaction is treated as a non-UK resident transaction when submitting the SDLT return. Once H has met the residence test, a refund of the 2% surcharge may be claimed.

Individual and corporate purchasers

A, B (individuals) and Dco (a company) purchase a residential property in England on 1 June 2022. Dco is a UK incorporated company in which C is the sole shareholder and director. A and C have been present in the UK for the last year, but B has only been present in the UK since 25 April 2022.

As one of the purchasers is a company, the residence test for the individuals is backward only. The residence of A, B and C (as shareholder in DCo) is therefore based on where they resided in the 364 days before the effective date. Given that B has been resident in the UK for less than 2 months at the effective date, B does not meet the residence requirement and the whole transaction will be subject to the 2% surcharge.

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