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A surcharge applicable to non-residents takes effect for residential property purchases by non-UK resident persons from 01 April 2021. Taxpayers should ensure they obtain specialist advice in all transactions as the rules are not straightforward and will need to be considered in the context of the wider Stamp Duty Land Tax (“SDLT”) legislation.
The British property market has long been attractive for foreign investors due to the robust legal framework, controlled planning regulations and rising house prices which provide confidence in the UK property market.
Property taxes provide a significant contribution to the UK treasury offering up SDLT (LTT and LBTT as the Welsh and Scottish counterpart) and the Government have continually pushed to extend the boundaries of the UK tax exposure on residents and non-residents alike.
It should not, therefore, come as a surprise that new rates of SDLT take effect from 1 April 2021 applying a surcharge of 2% to a non-resident purchaser of residential property.
Who is a non-resident?
A non-resident individual is not determined under the already comprehensive UK’s Statutory Residency Test (“SRT”) for other tax purposes. Instead, a person is deemed to be UK resident for the purpose of the SDLT surcharge, where they are present in the UK on at least 183 days during any continuous period of 365 days.
If any of the purchasers are non-UK resident in relation to the transaction, then all buyers are treated as non-UK resident and the surcharge applies to the entire transaction. This follows a similar approach to the existing 3% surcharge for joint purchasers where one party has an interest in other residential property.
In essence, the existence of one non-resident purchaser will taint the transaction and bring it within the scope of the 2% surcharge.
Joint purchases with spouses or civil partners?
Amnesty is provided where the non-resident party under a joint purchase is a spouse or civil partner.
Provided that there is a joint purchase between spouses or civil partners, with at least one person being resident in the UK under the rules above, the surcharge should not apply. Importantly, the spouses or civil partners must be deemed to be living together.
When considering purchases by a partnership, one must look at the circumstances of the individual partners. If any of the partners meet the non-resident test then the entire transaction is tainted similar to the position for joint purchasers.
Where the purchase is a UK resident company controlled outside of the UK, this would be considered non-resident for the purposes of these rules. This is the case where it is controlled by any number of non-resident participators.
As such, one is generally unable to navigate these rules by acquiring UK property via a company incorporated in the UK.
Trusts are treated as non-UK resident if any trustee is non-UK resident under the tests set out above. If this is met, the transaction will be a non-resident transaction and subject to the 2% surcharge.
However, please note that this rule does not apply to bare trusts or a trust in which any beneficiary is entitled to remain in the property for life or entitled to the income arising from the purchased property (i.e. an interest in possession trust).
Where you have a bare trust or interest in possession trust, we instead look to the beneficiary’s residency status to determine whether the purchase amounts to a non-resident transaction.
Please note that certain institutional investors are excluded from the surcharge including UK real estate investment trusts, property authorised investment funds, co-ownership authorised contractual Schemes and certain other financial institutions.
What if I become UK resident?
The provisions enable an individual to make a claim to recover the 2% surcharge within the 2-years following the transaction where the non-residency conditions fail to be met after the SDLT return is delivered and any liability paid.
For example, a refund would be available where the individual was not present in the UK in the 183 days leading up to the purchase but was present in the UK in the following 183 days.
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