As flagged in the Budget 2018, we now have the Government’s consultation regarding the proposed 1% additional rate of SDLT for non-residents. The consultation ends on 6 May 2019 and will then ‘be legislated for in a future Finance Bill’. So, in theory, the new rules could come into force later this year after the revelation of the 2019 Budget, assuming the usual legislative timetable is not altered by Brexit. The 1% surcharge will apply to purchases of residential property by non-UK resident individuals and ‘non-natural persons’, including companies, trusts and partnerships. The new surcharge will apply on top of the ‘additional 3%’ rate on each ‘slice of the price’. This means that the top rate of SDLT will become 16% on the slice above £1.5m, assuming the 3% additional rate also applies, which it is likely to for most non-residents.
So the surcharge only applies to residential property?
Yes – it will apply to those acquiring ‘dwellings’ in England and Northern Ireland. The surcharge will not impact those acquiring non-residential or mixed-use property. Significantly, it will also not impact investors acquiring six or more dwellings as part of a single transaction (SDLT has generally treated these types of transactions as non-residential and the surcharge is not seeking to change this). The consultation also states that multiple dwellings relief (MDR) could also be claimed where more than one dwelling is acquired, although the reality is that where six or more dwellings are acquired, it would often be better to simply pay the non-residential rate (c.5%) rather than claim MDR with the surcharge rate.
It is important to note that both Wales and Scotland now have their own versions of SDLT, the Land Transaction Tax (LTT) and Land and Buildings Transaction Tax (LBTT), and are not caught by these proposed changes.
When is an individual treated as ‘non-resident’ and caught by the surcharge?
The rules on this distinction are simple: an individual will be treated as non-resident for these purposes if they spent fewer than 183 days in the UK in the 12 months preceding the effective date of the transaction (usually completion). A person is resident in the UK for a day if they are resident at the end of the day (midnight). Note that this test is different to the statutory residence test, which has much more complicated parameters. Furthermore, a person who pays the 1% surcharge (but is in the UK for at least the minimum 183 days in the 12 months following the acquisition) can claim a refund of the surcharge.
How does the surcharge apply to companies and other ‘non-natural persons’?
A company which acquires a dwelling and is ‘non-UK resident’ will be subject to the surcharge. These rules will follow the usual tests for company residence and will catch non-UK incorporated companies whose ‘central management and control’ is based outside the UK. Many offshore investors have traditionally used non-UK incorporated companies which are controlled offshore, so they will fall squarely within the new rules. In contrast, a UK resident company (i.e. one which is UK incorporated, or a non-UK incorporated company which is managed and controlled from the UK) would not on the face of it be caught by the surcharge. Nonetheless, the government is still looking to catch non-UK resident persons who acquire dwellings using UK companies, so the proposal is that if a UK resident company is ‘close’ (defined as controlled by five or fewer participators) and is under the ‘direct or indirect control’ of a non-UK person, then the surcharge still applies. It follows that ‘widely held’ UK resident companies will not be caught by the surcharge (even if there are some minority non-resident investors) and it appears that UK based unit trusts and other forms of collective investment scheme will also fall outside of the surcharge.
How does the surcharge interact with the flat 15% rate?
The flat 15% rate applies where a company acquires a dwelling and cannot claim any of the usual landlord/property developer reliefs (an owner-occupier buying through a company is therefore hit by the flat 15% rate). It is clear that the surcharge will apply to this flat rate, and so in future it will become a flat 16% rate. It will remain very SDLT inefficient for owner-occupiers to acquire homes through companies, especially as Annual Tax on Enveloped Dwellings (ATED) would continue to apply as well.
How are joint purchasers dealt with?
Like the additional 3% rate, if one joint purchaser is a non-UK resident, then this will ‘taint’ the transaction and mean that the surcharge is incurred – this rule will also apply to partnerships if only one partner is non-UK resident. Unlike the 3% additional rate, you are not tainted by your spouse, so in theory a UK resident buyer who buys a property individually would not be liable to pay the surcharge if they had a non-UK resident spouse (although this is unlikely to be a common scenario).
Stamp Duty Land Tax (SDLT): 14 day filing window
New legislation has been introduced to reduce the SDLT filing and payment deadline to 14 days for transactions with an effective date of on or after 1 March 2019. Buyers will continue to have 30 days to file their returns and pay SDLT where the effective date is on or before 28 February 2019.
In some cases, buyers can apply to HMRC for a ‘deferment application’ to pay SDLT at a later date – broadly this is when the purchase price is uncertain and payable at least six months after the effective date. The time limit for making SDLT deferment applications will remain at 30 days after 1 March, however buyers should note that the obligation to file further returns after a trigger point (e.g. when the uncertainty ceases) could either be 14 or 30 days, depending on the circumstances.