Since 1 April 2021, a new 2% surcharge has applied to non-UK residents buying 'dwellings' in England and Northern Ireland.
We sketch some of the detail below, but a more general observation is that SDLT on residential property is now even more complicated. Gone are the days of the simple 'slab' system, when conveyancers simply had to decide whether a property was residential and then see which 'slab' the price fell into (and a fixed rate of SDLT applied to that 'slab'). Now, a conveyancer has to be an expert on, amongst other things:
- The 'slice system' of SDLT, which applies different rates of SDLT to different 'slices' of the price. One positive result of this news however, is that the online SDLT calculator does take away much of the hard work, provided that the inputs are correct.
- The 3% higher rate on additional dwellings (HRAD). HRAD is intended to catch individuals buying second homes, but the rules are not straightforward. For example, there are specific rules which decide when a person is considered to have an interest in another dwelling. There is also a specific exemption when a main home is replaced, if you meet the prescriptive rules. It is also usually the case that companies will be hit by HRAD, or even the penal rate of 15% (or 17%) if one of the usual 'business' reliefs does not apply.
- Whether a property is wholly residential or whether it is mixed-use / non-residential. This can be a significant point, given the potentially large SDLT savings (to the extent it never used to be, when the top rates for residential and non-residential / mixed were not too different). Care must be taken here: the Tax Tribunal is currently full of cases in which buyers paid SDLT on the basis of 'mixed-use', but which HMRC are currently successfully arguing are wholly residential.
- Multiple dwellings relief: knowing when to claim relief when more than one 'dwelling' is purchased.
- The SDLT 'holiday', which increases the nil rate band to £500,000 for transactions completing before 30 June 2021, and to £250,000 for transactions completing before 30 September 2021.
The non-resident surcharge can now be added to this mix. Where it applies, the surcharge adds 2% to the residential rate which would otherwise apply. There are special SDLT rules for deciding whether a person is 'non-resident'. For individuals, a person is treated as being resident in the UK if they are present in the UK (meaning present at the end of a day) on at least 183 days during any continuous period of 365 days falling within the 'relevant period'. The 'relevant period' generally starts 364 days before completion of the transaction and ends 365 days after completion of the transaction. NB: the timings will be different if a contract is 'substantially performed' before completion, e.g. by the buyer taking possession or paying most of the price. Further, if a person pays the surcharge but then becomes UK resident in this 'relevant period' after completion, then they can reclaim the surcharge.
Special provisions apply to other types of entity. A non-resident company is caught by the surcharge. A UK resident company is also usually caught if it is effectively controlled by non-residents.