New rates of SDLT for non-UK residents
With higher Stamp Duty Land Tax rates effective since 1 April 2021, could you be affected?
Non-UK resident purchasers of residential property in England and Northern Ireland will be subject to higher rates of Stamp Duty Land Tax from 1 April 2021.
When?
The higher rates of SDLT are imposed on transactions with an effective date on or after 1 April 2021. For the purposes of SDLT, this effective date is typically the date of completion. However, if the contract was substantially performed on or before 31 March 2021, then this date of substantial performance will be treated as the effective date, and the higher rates will not apply to the transaction, regardless of when completion occurs.
What?
The new rates of SDLT are 2 percentage points higher than the rates applying to purchases made by UK residents. These new rates will apply to all non-resident transactions.
These are defined in the draft legislation as any purchase by a non-resident of a major interest in a dwelling or dwellings, where the chargeable consideration for the transaction is £40,000 or more. For the purposes of non-resident transactions, a major interest does not include a term of years absolute or a leasehold estate with 21 years or less to run, nor can the interest be subject to a relevant inferior interest, being where a term of years absolute or leasehold estate granted out of it has more than 21 years to run.
It is important to note that this legislation does not apply to transactions of property within the UK but outside England and Northern Ireland; so, a non-resident purchasing residential property in Wales or Scotland would not be impacted by these new rules.
Who?
The new legislation applies to any individual who is not UK resident. An individual is treated as UK resident if they are present in the UK on at least 183 days during any continuous period of 365 days falling within the relevant period. This relevant period is the period that begins with the day 364 days before the effective date and ends with the day 365 days after the effective date.
This relevant period is reduced to the period beginning on the day 364 days before the effective date of the transaction and ending on the effective date of the transaction in some special circumstances, such as where the purchaser is acting in its capacity as the trustee of a settlement.
A company is treated as non-resident if either of the two conditions in the legislation are met. The first of these is that the company is not UK resident for the purposes of Corporation Tax, which is unlikely to be the case if the company was incorporated in the UK. Alternatively, a company will be treated as non-resident for the purposes of SDLT if it qualifies under the second condition, being a close company, which meets the requirements of the non-UK control test, and which is not an excluded company.
It should be noted that where there are multiple purchasers, the transaction will be treated as non-resident even if only one of the purchasers is non-resident.
