Stamp Duty Land Tax Surcharge for Overseas Buyers

What is the new surcharge?

New rules introduced by the UK Government mean that overseas buyers of property in the UK will be required to pay an additional 2% tax on top of the current residential SDLT rates. The surcharge is applied on top of:

  • First-time buyer rates;
  • 3% additional dwellings charge;
  • Higher rate applying to companies’ residential transactions of over £500,000; and
  • Flat 15% Annual Tax on Enveloped Dwellings.

This new surcharge will apply to purchases which completed on or after 1 April 2021.
However, in transactions where exchange has occurred prior to 1 April 2021 but which are not substantially performed until after that date, transitional rules may apply.

Is this for all transactions?

The new surcharge will apply to purchases by any non-UK resident individuals and non-UK companies. Some UK resident ‘close companies’ will also be subject to the surcharge.

The surcharge will not apply to all transactions. Exemptions include:

  • Where the purchase is for less than £40,000;
  • Acquisition of leases with less than 21 years residue; and
  • Reversionary interests on leases which an excess of 21 years residue.

Am I considered a ‘non-UK resident’?

A tailor-made test has been introduced to determine UK tax residence in light of the surcharge.

An individual will be treated as a UK resident if, that person is present in the UK on at least 183 days in any continuous period within 364 days prior to purchase and 365 days after it.
The day count includes any day when the person is in the UK at midnight.

If an individual fails to meet the threshold for this by the date of completion, they will be treated as a ‘non-UK resident’ and will therefore be subject to the surcharge. They may be able to reclaim the surcharge if they subsequently meet the criteria because of the days spent in the UK after completion.

In order to do so the individual should submit an amended return within two years of completion.

Other considerations?

The following circumstances are also scenarios in which residency is determined:

  • Spouses benefit from special exceptions, so if one meets the threshold for UK residency then they are both considered UK residents;
  • Joint purchasers who are not married or in a civil partnership do not benefit from an exemption. Therefore if one person does not meet the requirements then all purchasers are treated as non-UK residents;
  • Business partners will be considered as non-UK residents if just one partner does not meet the requirements;
  • Trusts are also considered as non-UK resident if just one trustee fails to meet the requirements. However, in cases of bare trusts or beneficiaries entitled to a life interest in residential property, the beneficiary themselves must meet the requirements;
  • Corporate purchasers can be considered as non-UK residents if the company is not UK resident for corporation tax purposes; and
  • Non-UK residents purchasing through a UK company are still considered non-UK residents.

Please note there are separate rules for Wales where the regime is called Land Transaction Tax.

Bartons acts in UK property purchases for international clients around the world and can provide specialist advice in connection with such transaction. For assistance please contact Raymond Hayes at rh@bartons.co.uk or Sharon Siu at s.siu@bartons.co.uk.

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