The UK’s New Stamp Duty Land Tax (SDLT) Surcharge

Amongst the significant changes to UK property taxation in recent times is the SDLT ‘Surcharge’.

The SDLT Surcharge is a new additional tax on top of existing residential rates of SDLT (including the current 3% ‘additional homes’ surcharge, the flat 15% rate for certain non-resident companies and existing duties on leases) applied where a non-UK resident (trustee, company or individual) purchases residential property in England and Northern Ireland (for individuals, only if purchasing an additional home). The surcharge is due to come into force in April 2021 and will be charged at 2% and having a dramatic effect on the potential top rate of SDLT paid by non-UK resident purchasers (a potential top rate of 17%!).

Which transactions are caught by the new surcharge?

1. All purchases of a major interest in UK dwellings (excluding leaseholds under 21 years);
2. Where the purchaser, or one of them, is non-UK resident (an exception exists for married couples); and
3. The purchase price is £40,000 or more.

A dwelling includes all private residential properties, a building or part of a building if it is used as a private dwelling or is being constructed or altered for such use.

What constitutes a non-resident?

An individual will be non-resident for SDLT purposes if they have spent fewer than 183 days in the UK in the 12 months preceding the property purchase (days of departure are not counted).

Non-residents can claim back the surcharge if they spend 183 days (or more) in the UK in any continuous 365-day period commencing 12 months before and ending 12 months after the date of purchase.

In respect of married couples, only one needs to be resident. In respect of companies, if they are incorporated or managed outside the UK they will be caught.

Impact on trustees?

For corporate trustees of discretionary trusts, the above rules in respect of companies apply. In respect of an individual trustee, the same 183-day rule will apply. If multiple trustees exist, the surcharge remains applicable where any one is non-resident.

The surcharge will apply in respect of interest in possession trusts, regardless of trustee residency, if a beneficiary is entitled to live in, or receive income from, a property where that beneficiary is non-resident as defined above.

Conclusion

Non-resident purchasers of property may wish to attempt to accelerate purchases ahead of April 2021 to avoid the surcharge and also benefit from the current SDLT exemptions in place as a result of COVID-19.

If you would like to discuss any aspect of the above or your specific circumstances, please don't hesitate to contact one of our experts:

Alasdair Johnston – London   alasdair.johnston@abacustrustgroup.com

Kevin Loundes – Isle of Man  kevin.loundes@abacustrustgroup.com

Andrew Faulkes – Monaco     andrew.faulkes@abacustrustgroup.com