Non-resident buyers in the UK could face SDLT surcharge

12/02/2019 News Team

The UK Prime Minister Theresa May has published a consultation paper on a Stamp Duty Land Tax (SDLT) surcharge of one percent for non-resident buyers of residential property in England and Wales.

This follows an announcement just before the Conservative Party Conference in September 2018 that she was discussing with colleagues changes to increase stamp duty land tax for buyers who do not pay UK tax, with this extra money being used to help the homeless.

The proposals became clearer in the Budget on 29 October 2018, where it became evident that expatriates (UK domiciled non-residents) who return and buy a property in England could be hit. 

Mel Stride, Financial Secretary to the Treasury commented: "The UK is and will remain an open and dynamic economy, but some evidence shows that non-UK resident buyers of UK property could be inflating house prices.

"A one percent surcharge could help more people own their own homes in the future, and its proceeds will go towards tackling rough sleeping, boosting our plan to halve the numbers of rough sleepers by 2022."

John Shallcross, associate at law firm Blake Morgan, highlighted a number of questions he hopes the consultation will answer.

1.  Will the extra one percent only apply if the purchase is already liable for the three percent SDLT surcharge for additional properties?  

If so, an expat couple returning to England might escape if neither own any other properties.

2.  How will they judge whether a person is ‘non-resident’ for UK purposes?  

Will the existing rules applicable for income tax, capital gains tax and inheritance tax for individuals, known as the Statutory Residence Test, as set out in the Finance Act 2013 be applicable?

Tax residence is determined for a tax year, but an individual’s residence status may not be known at the time of purchase. The consultation paper would have to deal with this, as liability to SDLT needs to be established on the ‘effective date’ of the transaction, which is usually the completion date of the purchase.

This could also mean that the tax may have to be paid ‘on account’ and then recovered if it turns out that the person was resident at the time of the purchase.

3.  How will they deal with people who have been non-resident, but will become UK resident by moving back to the UK? 

The Finance Act 2013 provisions allow for split tax year treatment in a number of cases, which returning expats often qualify for.

The purchase of a property in England would not normally in itself make a person tax resident, as   someone returning could end up buying while having non-resident status, even though physically present in the UK.

Mr Shallcross suggested that the paper could “provide for an expat to be exempt from the one percent charge, if for example, they were non-resident for five years or less.”

4.  Will it make an already complicated SDLT system even more complex?

Mr Shallcross hopes that the consultation paper could be used as an “opportunity to simplify the existing rates of SDLT,” given HMRC’s ‘Guidance note for Statutory Residence Test (SRT): RDR3’ is currently 105 pages long.

The Statutory Residence Test means that a person may be resident under the Finance Act 2013 provisions but be treaty non-resident pursuant to the terms of a double tax treaty.  For example an individual might be resident in Spain under Spanish domestic law and also UK resident under UK domestic law but treaty non-resident under the tie-breaker test. 

5.  When will the changes apply?  

The Consultation Paper might need to address the EU requirements for the equal treatment of EU nationals in tax matters, which arise from EU freedom of movement rules. While the UK remains bound by these, the UK might not be able to tax those EU nationals (including UK nationals) who are resident elsewhere in the EU differently from those resident in the UK. 

However, the UK could now choose to impose the extra one percent on a non-EU national who is non-resident, for example, a US citizen who is buying in England. 

The consultation period is expected to last 12 weeks.

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