Stamp duty surcharge on non-resident property transactions

Author: Richard Dilley
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The government has issued draft legislation outlining how the two per cent Stamp Duty Land Tax (SDLT) surcharge will apply to non-resident property transactions.

‘Relevant period’ for stamp duty residence test

From 1 April 2021, the number of days a company, trust or individual has resided outside of the UK will determine liability to the surcharge.

The surcharge will apply where companies, trusts and individuals purchasing UK residential property have not resided in the UK for 183 out of an uninterrupted 365-day period falling within the ‘relevant period’. The ‘relevant period’, for the purposes of the stamp duty residence test, will count as the 12 month period prior to or following the effective date of a transaction.

If the purchaser pays the surcharge but satisfies residence conditions within the following 365 days, a refund may be issued.

It is worth noting that the residence test for SDLT purposes is different to that for other UK taxes; consequently, an individual who may be resident for one tax may not be resident for SDLT.

A company will be deemed non-resident where it is already so for the purposes of its corporation tax liabilities. A UK resident company controlled by a small number of investors residing outside of the UK will also be non-resident.

The cost of investing in UK residential property

Remarkably, the surcharge will be levied in addition to existing surcharges on the acquisition of second properties by individuals and of dwellings by companies. Once accounted for, the potential top-rate surcharge becomes 17 per cent.

Considering the existing rates, an additional two per cent might not seem like a lot. However, it has the potential to make UK residential property a much less attractive investment for non-residents.

SDLT in and of itself is a complex mesh of rates and rules, and one that can be difficult to navigate without the safety net of professional advice; the new surcharge is only likely to add to this.

Consequently, it could be advantageous to pursue completion prior to its introduction, or to speak to a tax adviser about transactions likely to occur after the date.

How can George Hay help?

Because of the intricacies, effective property tax planning can prove challenging for those investing in, developing or managing one property or a portfolio of properties.

We can support you throughout your venture. We will assist you with proactive and effective property tax planning, whether resident or non-resident, – identifying and taking advantage of opportunities to minimise your property tax liabilities and maximise your return on investment.

To talk to one of our property tax experts about your circumstances, contact us today.

Link: New rates of Stamp Duty Land Tax for non-UK residents from 1 April 2021.

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