It was confirmed in the Budget 2020 that from 1 April 2021, a 2% Stamp Duty Land Tax (SDLT) surcharge will apply to non-UK resident individuals, companies and trusts purchasing residential property in England and Northern Ireland. Notably the surcharge does not affect Welsh LTT or Scottish LBTT.
It is widely expected that rules will be introduced to stop non-residents simply incorporating UK entities to acquire the residential property.
In practice, this means that the rate of SDLT on the "top slice" of the price of high-value residential properties (i.e. the price above £1.5m) will be 17% from 1 April 2021, as follows:
| "Slice" of the price |
Residential property SDLT rates
+ 3% second property surcharge
+ 2% non-resident surcharge |
| Up to £125,000 |
5% |
| £125,001 - £250,000 |
7% |
| £250,001 - £925,000 |
10% |
| £925,001 - £1.5 million |
15% |
| Over £1.5m |
17% |
Given the higher rates applicable to some buyers, it will be important to make sure that any residential purchases are complete before 1 April 2021 if possible. Notably exchanging contracts before, but completing after, 1 April 2021 will not be enough to escape the surcharge.
The surcharges do not apply to non-residential or mixed use properties, in relation to which the top rate of SDLT remains 5%. This new surcharge will therefore only add to the importance of distinguishing residential from non-residential / mixed use property for SDLT purposes. Whilst it is clear that HMRC are being more active in challenging the boundary between what is residential and what is mixed-used (as evidenced in the recent Tax Tribunal decisions), the issue is obviously not yet important enough at the moment to prompt any legislative change. For example, a simple change could be to oblige buyers of mixed-use properties to apportion the consideration between the residential and non-residential elements, with SDLT being charged at the relevant rates on each part. However, no such change appears on the immediate horizon.
It is also worth noting that increasing the residential rates in this way could potentially push non-residents to look at buying the corporate entities that own such high value residential property (rather than the real estate itself), as such share transactions are usually outside the scope of SDLT. However, with the complexities and additional risk of buying a corporate vehicle, the existence of ATED and concerns about anti-avoidance rules applying on any subsequent de-enveloping of a property may limit such activity in practice.