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  • Non UK resident property investor SDLT

    SDLT: She ain’t what she used to be

    To state the basics, SDLT is a tax that is levied on the Purchaser. This might be a very basic point but does cause some client’s confusion (for example the may think it is due, by them, on a sale).

    It is applied to the acquisition of interests in land (for example freehold and leasehold interests in property).

    All interests in land are subject to the duty unless they are exempt. These are known as chargeable interests in land. For example, where a bank acquires a security interest (i.e. collateral for your loan) then that is an exempt interest in land. We can’t have the bank paying needless SDLT can we?

    Depending on the value of the property or interest purchased, a relevant percentage of tax is levied on the Chargeable Consideration. The Chargeable Consideration is usually the consideration paid for the land.

    For example, if I sell you my property for £1m in cash then that is the chargeable consideration. You will pay SDLT on £1m.

    If I am feeling generous and I give you the property then there is no consideration and, in the absence of deemed consideration, there is no SDLT.

    An example of deemed consideration might be where I give you the £1m property on the condition you take over my £500k mortgage. This assumption of debt is consideration. You will pay SDLT on the £500k.

    Another common deeming provisions is where one transfers an interest in land to a connected company. In most cases, the deemed consideration will be the market value of the property when transferred.

    For some time, the top rate of SDLT was 4% – it was then raised to 5%.

    This contrasts dramatically with the 0.5% duty on UK shares and nil on non-UK shares.

    Store this point for later in the grey memory banks for later!!!

    What was the problem – Non UK resident property investor SDLT?

    It seems the catalyst behind the changes was the realisation (whether real or imagined) that whole swathes of prime residential streets in London were owned by hundreds, if not thousands, of non-UK Companies.

    Indeed, the BBC has just reported on this very issue.

    These companies are based in the same exotic locations featured in the Paradise Papers ‘revelations’.

    The holding of properties in this manner through Companies is often referred to as ‘enveloping’ a property. A property in a Company is therefore often referred to as an ‘enveloped’ property.

    As far as I am aware, this was not a traditional technical term as such. However, it had a significant honour bestowed on it by becoming part of the title of what was a brand-new tax known the Annual Tax on Enveloped Dwellings (ATED).

    Once in this ‘envelope’, the shares can be bought and sold without any duty as, remember, the duty on non-UK company shares is nil. A number of more ‘mass-market’ SDLT avoidance schemes used this basic premise as well (however, there rather contrived schemes have bitten the tax dust for other reasons).

    The Government’s solution to this problem was two-fold:

    1. to make enveloping the properties in the first place unattractive – the reason behind the following SDLT changes; and
    2. for existing envelopes, hit them with a tax – to be discussed later on in ATED blog later in this series.

    The initial April 2012 changes


    With effect from 22nd April 2012, there were two changes:

    1. the top rate of SDLT was increased to 7 percent for all residential properties costing over £2 million (note that this itself is now superseded by the December 2014 rate changes); and
    2. Where the same property is acquired through a company (or certain other vehicles), then the rate of SDLT is 15 percent.

    The higher 15% ‘super rate’ applies in circumstances where the property is acquired by something or someone called a Non-Natural Person (NNP).  Rather than being a personal slight, this specifically refers to ‘vehicles’ such as companies, collective investment schemes (including unit trusts), and partnerships in which a non-natural person is a partner.

    Note that a NNP does not include Trustees even where the Trustee is a Corporate Trustee.

    From 20 March 2014, the 15% rate of SDLT was revised such that it applied on the acquisition of property interests valued at over £500,000 where the purchaser is a NNP.

    Clearly, this reduction means that it will apply to most decent sized houses in London and the South East that have been acquired through companies (where the relevant reliefs available do not apply).

    That segue takes us to…


    There are various reliefs and exemptions (which broadly mirror those offered under ATED) that might apply against this penal rate of tax.

    The result is that the 15% SDLT rate will not apply where a property is acquired, say, for the purpose of:

    • a property development business,
    • letting to third parties on a commercial basis (note letting to a family member, even on a commercial basis, does not count), or
    • a property trading business, provided that the property is not occupied by a person connected to the company (e.g. a shareholder or, in the case of a company held by a trust, the settlor or a beneficiary of the trust).

    These are the ‘big three’ and other reliefs are available.

    Why include these reliefs in the rules? Well, if you recall, the rules were introduced to stop people ‘enveloping’ their main residences or, in relation to some of our non-resident friends, their London Summer retreats.

    The presence of reliefs for genuine commercial activity is entirely consistent with this. There are many commercial reasons why one would hold their property portfolio, or conduct their development, via a Company.

    When the new rules were first espoused, a number of these reliefs were quite restrictive and, well, a bit mean. However, the Government, to its credit, did take on board the concerns of interested parties and these have turned out to be reasonably practical and sensible.

    However, any such relief from the super SDLT rate will be clawed back if, at any time in the 3-years, the conditions for the relief are broken. For instance, if one is relying on the letting exemption and your tenant moves out and your parents move in within three years then your relief will be withdrawn.

    December 2014 – overhaul of SDLT

    The old SDLT rules were quite archaic.

    One would look at the total value of the property and apply the relevant rate of tax to the total value of the property. The bandings meant that the higher the value of the property the higher the rate. This was called the slab system.

    This could have really unfair results where an extra £1 of consideration could lead one in to a higher band meaning the extra SDLT would be disproportionately high. Of course, this did not often happen in practice as the market became distorted around the various thresholds.

    The new system is progressive in the sense that one only pays the higher rates on the part of the value of the property that falls within that band. Only paying higher rates on the amount falling in that band. So a bit like your income tax bill.

    However, the new system also brought with it new bands and new rates.

    As a rule of thumb, properties purchased for up to around £925k are likely to pay less SDLT under the post December 2014 rules (excluding the 3% additional property surcharge, anyway).

    Those properties that are purchased for consideration over £925k are likely to pay more.

    Those properties changing hands for a price much higher than this will pay much more SDLT!

    So beware of this added property transaction cost if one is considering purchasing a high value residential property in the UK.

    The new changes apply generally to all relevant purchasers – so includes an Individual purchasing a property. Please note, the 15% still applies for NNP’s buying properties over £500k.

    The 3% SDLT surcharge for Buy to Let Acquisitions

    Another SDLT consideration to throw in to the mix is the 3% SDLT charge that has applied where a ‘second property’ for an individual (or a first property for a Company) is purchased after April 2016.

    This will be covered in the next article – as it is a detailed subject in its own right.


    Non UK resident property investor SDLT is the second article in a collection on non UK resident investor property taxes concerning residential property.

    The other articles are:

    1. Non UK resident property investor tax: An introduction;
    2. Non UK resident property investor SDLT;
    3. Non UK resident investor tax: 3% Additional rate of SDLT;
    4. Non UK resident investor tax: ATED;
    5. Non UK resident investor tax: Capital Gains Tax;
    6. Non UK resident investor tax: IHT

    For changes announced in the Autumn Budget 2017 regarding commercial property and shares in property rich companies then please see here.


    If you have any queries  on Non UK resident property investor SDLT or other areas of property taxation then please get in touch