SDLT - New 2% SDLT Charge for Non-Residents

From 1 April 2021 a 2% non-resident SDLT surcharge will apply to non-UK residents who purchase residential property in England and Northern Ireland.

Stamp Duty Land Tax (SDLT) is currently payable at a rate of up to 15% on the acquisition of residential properties. 

An additional 2% non-resident SDLT surcharge will apply on top of this amount to non-UK residents who purchase residential property in England and Northern Ireland from 1 April 2021.

Residence tests

There are new tests for residence specifically for the purposes of determining whether this surcharge applies. 

Individuals

The SDLT surcharge test states that an individual is UK resident if that individual is present in the UK on at least 183 days during any continuous period that:

• Begins with the day 364 days before the effective date of the chargeable transaction, and
• Ends with the day 365 days after the effective date of the chargeable transaction.

Therefore, there is a two year window during which the 183 day test could be met. 

Companies 

A non-resident company will be liable for the 2% surcharge if on the effective date of the chargeable transfer: 

• The company is not UK resident for UK corporation tax purposes, or
• The company is subject to UK corporation tax but it is a ‘close company’ which is controlled by one or more persons who are not UK resident (using the above SDLT test for residency) unless exemptions apply.

Conclusion

This is change is clearly intended to increase costs for non-UK resident investors. All those investing in UK residential property should consider their residence status under these rules - which may be different to their residence status for other UK tax purposes. Particular care should be taken where one or more of the shareholders in the acquiring company is considered to be non-UK resident under these rules.

For non-UK residents looking to de-envelop properties from corporate structures, consideration will be given to accelerating this to take place before 1 April 2021 where this is expected to give rise to an SDLT liability.

For help and advice on any UK real estate tax issue please get in touch with your usual BDO contact or a member of the local tax team.