Increased SDLT surcharge for non-resident transactions

A 2% Stamp Duty Land Tax (SDLT) surcharge applies to purchases of residential property in England and Northern Ireland made by non-UK residents.

Currently, the surcharge increases the rate of SDLT in each band of charge by 2%, making the maximum SDLT rate for non-UK residents 17%, although the exact rate is dependent upon the precise circumstances.

It should also be noted that, as outlined in its manifesto, the new Labour government has confirmed its intention to increase the surcharge to 3%. Assuming this change is then enacted the implementation date could be as early as from the date of the next Budget, which will be held on 30 October 2024.

The proposed increase, coupled with the removal of Multiple Dwellings Relief from 1 June 2024 could have a significant effect on SDLT charges arising to non-UK resident purchasers.

Proposed New Rates of Tax

The NRPS applies a percentage increase to all the residential rates of SDLT and the potential effects of a 3% rate are set out in the table below.

* With effect from 31/03/25025 the nil rate band will be reduced to £125,000 and the starting rate band of £125,001- £250,000 will be reintroduced.

Thus in addition to the 3% rate increase for additional properties, a non-resident individual purchaser of an additional dwelling will be charged a further 3% surcharge, culminating in an 18% SDLT charge on consideration exceeding £1.5 million. Since most non-UK resident individual purchasers have at least one residential property abroad this will apply to the majority of such transactions.

Exempted property

The surcharge does not apply to acquisitions of property which are chargeable under the non-residential rates of SDLT, such as residential property where six or more units are purchased in a single transaction or ‘institutional’ accommodation such as purpose-built student accommodation.

There are also other exemptions including purchases of leases with less than 7 years to run.

Who is affected?

The surcharge applies to purchases by non-UK resident individuals, partnerships with a non-UK resident partner, as well as non-UK resident companies, together with some trusts. It should be noted that the rule will apply where any of the purchasers is non-UK resident, so care should be taken with joint purchasers.

It is also important to bear in mind that the definition of ‘non-UK resident’ is different for SDLT purposes to existing definitions of residence for individuals and companies for income or capital gains tax purposes and purchasers may have different tax status and outcomes for different taxes.

Individuals

For SDLT purposes, an individual will be UK resident where they are present in the UK for at least 183 days during any continuous 365-day period in the “relevant period”. The “relevant period” begins 364 days before the effective date of the transaction and ends 365 days after that date.

Non-resident individuals who pay the 3% surcharge but become UK resident after the date of purchase may qualify for a refund of the 3% surcharge, depending on their circumstances.

Companies

For SDLT purposes, a company will be non-resident where the company is not UK resident for corporation tax but also certain closely held UK companies with overseas shareholders can be treated as non-UK resident for SDLT purposes.

How can Saffery help?

If you are purchasing property subject to SDLT, it is essential the purchase is structured correctly from the start, in order to prevent delays to exchange and completion, to ensure that sufficient financing is obtained to meet purchase costs including SDLT, and to optimise SDLT and direct tax implications. We can advise you on the purchase structure, the correct rates of tax, and the reliefs the purchase may qualify for. We can also advise you on re-organising or dismantling existing structures that no longer meet your requirements.

We can manage the associated tax compliance of purchase and /or reorganisation and to meet the 14-day deadline for filing the SDLT forms and paying the tax charge.

For advice on the new SDLT rates and structuring your property purchase, please speak to your usual Saffery partner, or contact Adam Kay or Susan Dennis.