Non-UK Resident SDLT surcharge comes into effect – Don’t throw away your phone bill or your gym usage record: it may just save you 2% on your house purchase
From 1 April 2021 a new 2% surcharge will apply to all non-resident transactions of residential property. This applies to both freehold and leasehold interests of seven years or more in England and Northern Ireland and is regardless of whether or not you already own a residential property in the UK.
‘Non-resident’ for this purpose is not the same as any UK statutory residence test or right to reside in the UK. It is an entirely new test for the purposes of SDLT. You could be caught by it even if you intend to live in the property you are buying. Examples would be someone working for a UK company abroad or studying at a US university and who is returning ‘home’ and buying a property. They might not consider themselves non-resident for this purpose but may be required to pay the surcharge – a significant additional expense.
The key date for the residence test is the “effective date” of the transaction. This is not necessarily the date of completion but the date of “substantial performance”. Substantial performance of the contract must be considered on a case by case basis. If you are in any doubt about it contact Greenwoods GRM for further advice.
The key test for an individual is whether they have been present in the UK for at least 183 days during the 12 months before the effective date. This will affect joint owners. Married or couples in a civil partnership are treated as an exception so if one partner is a ‘non-resident’ but the other satisfies the test, they will both be deemed to qualify. However, for non-married co-owners the opposite is true: if one falls foul and is judged ‘non-resident’ the transaction will be subject to the surcharge.
The rules in connection with companies are sufficiently complex so that each entity and structure must be considered individually. However, corporate buyers are definitely non-UK resident if they are not UK resident for corporation tax purposes at the effective date of the transaction.
UK resident companies or other corporate entities under direct or indirect control of non-UK resident persons may also be treated as non-resident in certain circumstances so the control and beneficial ownership of companies is increasingly relevant to SDLT payable on residential transactions by corporate entities. Again, you should seek advice as the effect of the non-resident test can be wholly unexpected. One example is a family company where one of the shareholders is an adult child studying abroad and non-resident under the test: this may result in the transaction being subject to the surcharge.
Whilst most people will be quite clear whether they have spent at least 183 days in the UK before a purchase, proving it to HMRC may not be easy! HMRC may require evidence (and lots of it) where there is any question of how long someone has spent in the UK. The types of information requested may include:
— credit cards and bank statements indicating the place of your day by day expenditure (yes, you will have to disclose buying those Jimmy Choos from Harrods on your 183rd day in the UK!)
— your work diaries or planners, even timesheets;
— evidence of your mobile phone usage, particularly looking at which country you are in;
— utility bills, although these will probably be limited to telephone bills; and
— finally, membership and usage of clubs for example sports, health or social clubs.
Who knew that your three times a week gym visit could well save you 2% SDLT by proving you were in the UK?
The Regulations are not straight forward, a number of reliefs apply, and it is possible to obtain a refund if certain criteria are satisfied. Deciphering the criteria needs thought (and a strong cup of coffee): being present for at least 183 days during a continuous 365 day period, falling within two years spanning the 364 days before the transaction and ending 365 days after. You must satisfy HMRC that you fall within this relief, on a £500,000 house, the additional SDLT is £10,000, so it will be well worth the effort.
The effect this new surcharge will have on the ultra-high net worth end of the market, which is largely buoyed by non-resident purchasers, will remain to be seen. It is doubtful that it will put them off entirely but may have the effect of depressing the price that off-shore purchasers are willing to pay with the consequential effect this will have on the Prime market.
For advice on prime residential property please speak with Karin or Lisa.
This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. This update relates to the prevailing circumstances at the date of its original publication and may not have been updated to reflect subsequent developments. If you have general queries about our updates, please email: firstname.lastname@example.org