Government proposes a 1 per cent increase in stamp duty land tax for non-resident buyers of residential property

The government has proposed to charge an extra 1 per cent stamp duty land tax for non-resident purchasers of residential property.

The surcharge will be applied to each rate of stamp duty land tax. These proposals are only applicable to properties in England and Northern Ireland as Scotland and Wales have their own land transfer taxes.

What does the proposed change mean for you?

Individuals

Rather than using the existing statutory residency test, the Government is proposing to treat individuals as non-UK resident for the purposes of the surcharge if they spent fewer than 183 days in the UK in the 12 months ending with the date the transaction occurs. A rebate will be available if the individual spends more than 182 days in the UK immediately following the acquisition. It is therefore important that individuals maintain records to ensure that they can support any claim made.

Companies

This higher rate will also apply to non-resident companies, Unit Trust Schemes and contractual schemes. Given non-residents could acquire properties through a UK company, it is also proposed that a UK resident company will be liable to the surcharge if, at the point it acquires residential property, it is a close company under the direct or indirect control of one or more non-UK resident persons. The residency status of the participators will be determined as if they were direct purchasers of the property acquired by the close company using the residence tests proposed for the surcharge.

Partnerships

Where a partnership acquires residential property, the surcharge will apply if one of the partners is treated as non-resident.

Trusts

For trusts the rules are more complex. Advice should be taken on any specific situation.

Definitions 

Mixed dwellings and acquisitions of six or more residential units will continue to be treated as non-residential acquisitions and subject to commercial rates of stamp duty land tax. This means that the proposed 1 per cent surcharge will not apply.

This consultation paper notes that there is evidence that purchases of property by non-UK residents is pushing up house prices for UK residents and therefore this measure aims to make it more costly for non-residents to acquire UK property. The Government, however, does acknowledge that the primary way to stabilise and improve affordability in the long term is to build more homes in the right places and is confident that it will reach its target of building 300,000 by mid-2020. This will however make it more expensive for non-residents to acquire UK property although it is not clear whether a 1 per cent increase will deter them from just swallowing the extra cost.

For further information, please contact Adrian Benosiglio or Andrew Robins.