Non-Resident Buyers of UK Residential Property Face April 2021 Double Tax Hit

Non-resident buyers of UK residential property face a double Stamp Duty Land Tax hit on purchases made from 1 April 2021.  HM Revenue & Customs have just released their draft rules on how the increase will be applied.

Next year’s increase follows the temporary SDLT cut which applies up to 31 March 2021, when the main rate of SDLT is cut to 0% on the first £500,000, which our recent blog explains. On 1 April 2021 all buyers will see the main rate reinstated, with non-residents paying a new 2% non-resident rate, and if the property in question is a second home or rental property then any buyer will face a further 3% surcharge on top including non-residents.  Special definitions apply to “UK resident” for this SDLT rule.

Planning to avoid the surcharge will include managing an individual’s days in the UK to achieve 183 days of being in the UK at midnight in any 365 day period overlapping the purchase date.  The days do not need to be consecutive.  Individuals who were already present in the UK for at least 183 days prior to the purchase can complete the SDLT return on the basis that the 2% surcharge does not apply.   If the buyer did not meet that condition at the time of filing the return, they have to pay the 2% surcharge at the point of purchase, but that can be reclaimed within two years if they subsequently met the condition after filing the original return.   The buyer can manage their residency days to get the best result.

Example:

Briony sometimes lives and works in Hong Kong. She buys a UK residential rental property on 30 April 2021.  In the 364 days before buying she had only spent four months in the UK (120 days) in the previous November – January.  However the new rules require her to pay the 2% surcharge at the time of purchase on the assumption that she will fail to meet the condition of being UK resident in any 365 day period around the purchase.   

Briony manages her remaining days in Hong Kong to make sure that she spends at least another 63 days in the UK between 1 May and 31 October 2021.  That gives her a minimum of 183 days in the UK in a 365 day period overlapping 30 April 2021.  She can amend the SDLT return and claim a refund of the 2% surcharge.  

The 2% surcharge will not apply to joint purchases by spouses or civil partners “living together” where one party is non-resident, as both will be treated UK resident for the purpose of the 2% rate.

Non-resident companies will also pay the 2% surcharge.  HMRC recently changed the tax rules so that the majority of non-UK resident companies will start to pay corporation tax on their UK income, but that does not itself make a company UK resident. Generally speaking a company is non-UK resident if it is not incorporated in the UK, but the definition can be wider than that. UK registered companies will also be caught by the 2% SDLT surcharge if they are controlled outside of the UK. The test is based on the existing “close company” control test with some modifications.

The reduced rate SDLT holiday until 31 March 2021 is an opportunity for buyers to consider whether it is worthwhile bringing forward a property purchase to take advantage of lower SDLT rates, but, as illustrated above, this is an even more focussed decision for non-resident buyers.

The G+E tax team advises on property tax planning including SDLT, and recently won the national Tolley’s Taxation Awards for 2020 as one of the best independent tax teams in the country.

Rob Durrant-Walker, Business Tax Technical Director – rdwalker@garbutt-elliott.co.uk