Consultation on a new SDLT surcharge applicable to non-residents purchasing UK residential property
HMRC has opened a consultation in relation to the design of an additional stamp duty land tax surcharge on non-residents who buy residential property in England and Northern Ireland.
The idea had originally been announced by the prime minister last October. The stated policy objective is to help more UK residents in to home ownership.
The government has said that there is evidence that purchases of property by non-UK residents is pushing up UK house prices, causing higher levels of inflation and therefore pricing UK residents out of the home ownership market.
The additional surcharge is a further mechanism to seek to counter this.
Theresa May’s original announcement envisaged surcharge rates of up to 3 per cent. However, the recently released consultation proposes a single rate of just 1 per cent to be added in addition to all existing stamp duty land tax (SDLT) rates. This will raise the top rate of SDLT to 16 per cent for those within the scope of the surcharge.
Who & How Does the Surcharge Apply?
The surcharge is intended to apply to all freehold and leasehold residential purchases by both natural and non-natural persons – trusts and corporates who are non-resident.
There are no specific reliefs from the new charge, but existing SDLT reliefs will generally continue to apply as normal.
Mixed-use properties, and purchases of six or more dwellings, will continue to be treated as non-residential and so would not attract the surcharge. Multiple dwellings relief will also be available, and the minimum rate of 1 per cent of the total amount paid will remain unchanged for those paying the surcharge, giving a 2 per cent minimum effective rate.
New or modified tests of residence are to be introduced specifically for the purposes of the SDLT surcharge. Of course this will add yet another layer of complexity to the already voluminous legislation. It is proposed for example that the new residence tests will catch UK resident close companies that are controlled by non-UK resident shareholders, as well as some partnerships and trusts.
It is proposed that individuals will be treated as non-resident for this purpose if they spent fewer than 183 days in the UK (not just England or Northern Ireland) in the 12 months ending with the date of the purchase.
The details of the residence tests for both natural and non-natural persons are one of the areas in relation to which comments are sought within the consultation. The new residence rules specifically for this purpose will be contained within the legislation enacting the surcharge, which will be incorporated in a future finance Bill.
The consultation is open until 6 May 2019.
For more information on any of the topics raised here or to learn more about property tax please contact our helpful team of tax advisers. You can also read more about SDLT and property tax below…