Meg Saksida explains the traps to bear in mind in connection with the 2% stamp duty land tax supplement and considers the definition of ‘non-resident’.
In Budget 2018, the government announced that it was planning a consultation on the introduction of a new stamp duty land tax (SDLT) supplement for non-resident individuals and companies purchasing residential property.
Foreign purchasers were considered the reason for inflation of property prices in the UK, and it was thought that by making UK property investment less appealing by increasing SDLT, price increases would be restrained.
The additional percentage was only to apply to those properties situated in England and Northern Ireland. After the consultation ended, the legislation was published (in Finance Act 2021), and the 2% surcharge was introduced for completions from 1 April 2021.
The dwelling
For the supplement to apply, the non-residents must be purchasing a ‘dwelling’ which was required to either be used or suitable to be used, to live in. If the dwelling was in the process of being constructed and the eventual use was to be residential, it would also be defined as a ‘dwelling’ for the legislation and the supplement would even be chargeable for off-plan residential purchases.
‘Dwelling’ covers both the property as well as any land occupied or enjoyed with the residence.
The non-resident transaction
The legislation states that if there is a non-resident transaction made by a non-resident individual, an additional 2% will be added to the SDLT cost. Usually, the SDLT on the purchase of the first £125,000 of a dwelling attracts an SDLT rate of 0%. The surcharge increases this to 2%. The next £125,000 is usually levied at 2% but this would rise to 4% and so on.
A non-resident transaction is the purchase of a dwelling situated in England or Northern Ireland, either freehold or leasehold, for which the value of the transaction is over £40,000, and the purchase is made by a non-resident person.
It is the definition of a non-resident person that taxpayers need to be mindful of, as it is not taken from the statutory residence test; nor is it taken from an individual’s passport, nationality, citizenship, any visa they may hold or their right to remain in any country.
The non-resident individual
A non-resident person is defined as an individual who has not been present in the UK (England, Wales, Scotland and Northern Ireland) at the end of the day for a continuous period of at least 183 days in a period spanning the last year before the property purchase and a year after it.
Because the non-residence definition includes consideration of a 365-day period post the purchase, at the time of the purchase a buyer may be non-resident, but then may satisfy the continuous 183-day period of UK residence in the year after the purchase. In these circumstances, their tax return can be amended within two years of the purchase, and HMRC will refund the extra 2% paid at the time of the purchase.
Joint purchasers
Usually, if a purchase is made jointly, even if one of the purchasers is non-resident, the surcharge will apply to all of them. However, this is not the case for spouses and civil partners. If the purchase is being made by a legal couple who are living together at the date of the purchase, if one of the spouses or civil partners is defined as UK resident, neither of the spouses nor civil partners will have to pay the 2% supplement.
Practical tip
As the definition of non-resident relies on days in the UK (rather than only England and Northern Ireland), purchasers must retain evidence to prove their location. Such evidence may include boarding passes, bank statements, phone bills, photos and other reliable proof.
