EXTRA 2%! Stamp Duty Land Tax For Non-UK Residents Surcharge
- Omar Aswat
- Sep 20, 2024
- 5 min read
Updated: Jan 5
Non-UK residents purchasing residential property in England and Northern Ireland are subject to a 2% Stamp Duty Land Tax (SDLT) surcharge, commonly referred to as the Non-Resident (NR) Surcharge.
HMRC applies this surcharge by adding 2% to each pre-existing SDLT rate across the entire residential property purchase price.
The surcharge also applies to leasehold properties over seven years, increasing SDLT on both rent and any associated premium.
It's important to note that Scotland and Wales have their own versions of property transaction taxes namely, the Land and Buildings Transaction Tax (LBTT) and the Land Transaction Tax (LTT) which replace SDLT in those regions.
This article focuses solely on SDLT and does not cover the tax implications of property acquisitions in Scotland or Wales.
Table of Contents
Background
The Non-Resident Stamp Duty Land Tax (SDLT) surcharge was introduced on 1 April 2021 as part of the UK government's broader measures to regulate the property market and address housing affordability concerns, especially in high-demand areas.
The government enacted the surcharge through the Finance Act 2021, specifically under Part 4 of Schedule 16. This legislation outlines the rules for determining non-residence for SDLT purposes and details the application of the 2% surcharge on non-UK residents purchasing residential property in England and Northern Ireland.
The government introduced this measure to deter foreign investors from driving up UK property prices and help residents buy homes.
Definition of Non-UK Residents for SDLT Purposes
For the purposes of SDLT, an individual is considered a 'non-UK resident' if they spend fewer than 183 days in the UK within any continuous 365-day period. This is the baseline and therefore, slightly skewed from the ‘normal Statutory Residence Tests; so keep that in mind!
The 365-day period begins 12 months before the property transaction and ends 12 months after. It's also worth noting that HMRC regards a person as having spent a day in the UK if they are present at midnight. This test considers days spent anywhere within the UK, not just England or Northern Ireland.
Buyers who pay the NR Surcharge may claim a refund if they meet certain UK residency requirements after the purchase. They qualify if they spend 183 days in the UK during any continuous 365-day period around the property transaction date.
Individuals returning or starting UK jobs may initially pay the surcharge but can reclaim it after meeting the 183-day residency rule.
This rule applies regardless of whether the individual is a first-time buyer or otherwise eligible for SDLT reliefs. Meeting refund conditions benefits long-term UK movers by easing the extra financial burden caused by the surcharge.
Reach out for a chat as we can certainly help!
Tax For Non UK Residents
Relief for Crown Employees
Crown employees who are non-UK residents but are subject to UK income tax may qualify for relief from the NR Surcharge.
This usually applies to armed forces members, diplomats, and civil servants overseas who buy residential property in England or Northern Ireland.
In these cases, HMRC waives the surcharge, recognising the individuals’ continued ties to the UK despite their overseas posting.
Joint Purchases and the NR Surcharge
When purchasers buy a property jointly, HMRC applies the NR Surcharge if any of them are classified as non-resident. This rule ensures that non-UK residents cannot avoid the surcharge by purchasing property alongside UK residents.
However, there is an important exception for married couples or civil partners. If one spouse or civil partner is a UK resident for SDLT purposes, the NR Surcharge will not apply to the purchase, even if the other party is a non-resident. HMRC grants relief to mixed-residency couples if one partner meets UK residency rules, preventing unfair penalties.
Acquisitions by Non-Resident Entities
The NR Surcharge also applies to non-UK resident entities such as companies, partnerships, and trusts acquiring residential property in England and Northern Ireland. In some cases, HMRC may apply the surcharge to UK-resident entities if non-UK resident individuals own, control, or beneficially hold them.
For example, a UK-resident company with non-UK resident shareholders could still be liable for the NR Surcharge if those shareholders have significant influence or control over the company’s activities.
Similarly, non-resident trustees acquiring property on behalf of a trust may also face a surcharge if certain conditions are met. This ensures that the NR Surcharge captures a wide range of property acquisitions involving non-residents, helping to level the playing field for UK buyers.
Example Scenario
Consider an individual named Mr A, who intends to acquire a residential property in England worth £1 million to serve as his main residence. Mr A currently lives and works overseas and has not spent any nights in the UK. He plans to move to the UK on the day the purchase is completed and does not own any other properties.
Under the standard SDLT rules, the tax payable on a £1 million residential property in England would be £41,250. This is calculated by applying a 0% SDLT rate to the first £250,000 of the purchase price, a 5% rate on the portion between £250,001 and £925,000, and a 10% rate on the remaining £75,000.
However, because Mr A has not spent any nights in the UK, he is considered a non-resident for SDLT purposes. As a result, the 2% NR Surcharge applies to the entire £1 million purchase price, adding an additional £20,000 to the total SDLT bill. This brings the total SDLT payable to £61,250.
If Mr A moves to the UK and spends at least 183 midnights in the UK within the 365 days following the property purchase, he can claim a refund of the £20,000 surcharge. This refund process is particularly valuable for individuals like Mr A, who are moving to the UK permanently but do not yet meet the residency requirements at the time of purchase.
Important Considerations and Variations
While the example of Mr A provides a straightforward case, the SDLT payable may vary depending on specific circumstances.
Factors such as ownership of other properties, the use of the property as a primary residence, and additional SDLT reliefs can influence the overall tax liability. It is always advisable to seek professional advice to understand the full implications of SDLT and the NR Surcharge based on individual or entity-specific fact patterns.
Conclusion
The NR Surcharge is a significant consideration for non-UK residents looking to acquire residential property in England or Northern Ireland. The surcharge adds a notable cost to the purchase, but there are opportunities for refunds in certain situations, such as when residency requirements are met post-purchase.
Relief is also available for Crown employees, and joint purchases may benefit from exceptions if one party is a UK resident.
Given the complexity of SDLT rules and the potential for different outcomes based on individual circumstances, it is crucial to seek tailored advice. Knowing half or two-thirds of the rules is not enough, and I’ve seen this negatively impact people!
Understanding the impact of the NR Surcharge can help non-UK residents and entities plan their property purchases more effectively and ensure they take advantage of any available reliefs.
Meet Omar
Omar is a Chartered Tax Advisor (a.k.a an expert on tax issues) and founder of ASWATAX. He regularly shares his knowledge and best advice here in his blog and on other channels such as LinkedIn.
Book a call today to learn more about what Omar and ASWATAX can do for you.
*Disclaimer: ASWATAX is a firm of Chartered Tax Advisors, and we strive to provide accurate, up-to-date tax insights. Tax laws may change, so this content is for general guidance only and not a substitute for professional advice. Seek independent tax and legal counsel before making decisions. ASWATAX is not liable for any loss from reliance on this information. Use at your own risk.
Comments