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The new SDLT surcharge for non-UK resident buyers

Posted: 29/01/2021

New rates of stamp duty land tax (SDLT) will be introduced shortly, for purchasers of residential property in England and Northern Ireland who are not resident in the UK. The new rates will be 2% higher than those that apply to purchases made by UK residents and will apply from 1 April 2021.

The Government’s stated policy objective is that ‘the surcharge will help make house prices more affordable, helping people get onto and move up the housing ladder in line with wider objectives on homeownership. The revenue raised will be used to tackle rough sleeping’. In forecasting the level of revenue likely to be raised by the surcharge, the Government expected an increase in transactions prior to the introduction of the surcharge but for there to be a reduction in transactions in 2021/22 and beyond, when the higher rates will apply.

This article considers the detail of the new rules, and in particular, the meaning of ‘non-resident purchaser’.

Non-resident transaction

The 2% surcharge will apply to a non-resident transaction.

A transaction is a non-resident transaction if the purchaser is, or (if there is more than one purchaser) the purchasers include a person who is non-resident. Therefore, in the case of joint purchasers (other than spouses or civil partners, see below), if one of the purchasers is UK resident and one is non-resident, the transaction will be considered a non-resident transaction.

The draft legislation contains tests to determine whether a person is UK resident or not UK resident for the purposes of the transaction. There are different tests for individuals, companies and trustees.

The additional 2% of tax will apply as a surcharge to the various standard SDLT rates, ie i) the standard rates for residential transactions; ii) the higher rates for the purchase of additional dwellings; iii) the 15% flat rate for high value residential transactions by companies; and iv) the rates for first time buyers that qualify for relief. This means that the top rate of SDLT will be 17% from 1 April 2021 and the calculation of the SDLT due on a residential property purchase is set to become even more complicated than it is at present.

The rules will not apply where the purchase is for less than £40,000, or, in the case of leasehold transactions, where the lease has 21 years or less to run or the purchased interest is reversionary on a lease that has more than 21 years to run. 

The meaning of ‘non-resident individual’ – not as we know it

The Government has chosen to create a new test of non-residence for individuals, instead of this question being decided under the UK’s Statutory Residence Test (SRT) which otherwise applies for UK tax purposes.

Specific residence advice on SDLT will be needed, therefore.

The basic rule is that an individual is UK resident if they are present in the UK on at least 183 days during any continuous period of 365 days that fall within the relevant period. The relevant period is the period that:

  • begins with the day 364 days before the effective date of the transaction (usually completion of the purchase of the property); and 
  • ends with the day 365 days after the effective date.

The individual must be present in the UK at midnight for this to count as a day of presence in the UK. If an individual does not meet this test then they are non-resident.

The effect of the above is that if, on the day an individual completes on the purchase of a property, that individual has not been present in the UK on at least 183 days in the 364 days prior to the day of completion, they will be non-resident under the rules and the 2% higher rates will apply to the transaction. However, as the relevant period includes the 365 days after completion, an individual who pays the 2% surcharge can claim a refund of the surcharge paid if, in the 365 days following completion, they are present in the UK on 183 days. In such a case, this would mean that the transaction is no longer a non-resident transaction. An amended return must be made within two years of completion.

Note that if an individual is present in the UK at midnight for 183 days or more in any UK tax year, that individual would be UK resident for other tax purposes. However, under the new rules for the SDLT surcharge, the 183-day threshold is not applied in the same way because what matters is presence in the relevant period and not presence in the UK tax year (which runs from 6 April to 5 April).

For many individuals, the surcharge will represent only a temporary cost because of the ability to become UK resident, for the purposes of the surcharge, after completion. However, the surcharge will need to be factored in at the time of purchase, and the individual will need to follow the correct process to claim the refund, and possibly provide evidence of their presence in the UK, if they satisfy the conditions afterwards.

Spouses and civil partners

Special rules apply to spouses or civil partners who are living together and who are purchasing property jointly (whether or not also with others). Where one spouse or civil partner is UK resident and the other is non-resident (as determined under these rules), the non-resident spouse or civil partner will be treated as UK resident. The 2% surcharge would not, therefore, apply. This would not be the case if a non-resident individual purchases a property in their sole name at a time when their spouse or civil partner is UK resident; the UK resident spouse must be a joint purchaser.  

Non-resident individuals – other special cases

There are particular rules for determining whether an individual is UK resident where the purchaser(s) is/are (or include):

  • a company;
  • partnership; or
  • the trustees of a trust under which no person has a right to occupy the dwelling for life, or to the income arising from it (see below for the rules governing trusts where such rights do exist).

An individual is UK resident for these purposes only if they have been present in the UK on at least 183 days in the period that begins with the day that is 364 days before the effective date of the transaction. There is therefore no ability for the transaction to become a ‘resident transaction’ because the individual spends 183 days in the UK after the effective date.

These rules raise the following issues, amongst others:

  • Where the purchaser is a UK resident company which is controlled outside the UK, such a company would be considered non-resident for the purposes of these rules if it were controlled by any number of non-resident participators. The question of whether those participators are non-resident would be determined under these particular rules (and not the basic rule for individuals).
  • Where the purchasers are individuals acting in the capacity of trustees of a discretionary trust, that transaction would be a non-resident transaction if any of the individual trustees have not met the test above. There may be cases where a trust is considered UK resident for income tax and capital gains tax purposes (because the majority of the trustees are UK resident and the settlor was UK domiciled when they established the trust) but is considered non-resident for SDLT purposes (because there is one trustee who is considered non-resident under these rules). For the 2% surcharge not to apply, all of the individual trustees must be UK resident. Consideration could be given to amending the terms of the trust so that a beneficiary does have a right to occupy the property or to the income from it, since the test below would then apply instead.

The same rules would apply to individuals acting in partnership. If any one of the individual partners is non-resident, the 2% surcharge would apply.

Trustees of life interest settlements and bare trusts

If the purchasers are, or include, the trustees of a trust under which a person, the life tenant, is entitled to occupy the dwelling for life, or to the income arising from it, the transaction is a non-resident transaction if the life tenant is non-resident (applying the basic rule for individuals); therefore the residence status of the trustees does not matter.

In the case of bare trustees acquiring a new lease, the transaction is a non-resident transaction if the beneficiary is non-resident. This fits with the usual rule with respect to bare trusts of looking through to the identity of the beneficiary.

Non-resident companies

Under the rules for companies, a company is considered UK resident if it is resident in the UK for corporation tax purposes. For corporation tax purposes a company is resident in the UK if it is incorporated in the UK or if it is centrally managed and controlled in the UK.

However, even if a company was UK resident for corporation tax purposes there are certain circumstances in which the company would be treated as non-resident for the purposes of the surcharge. This would be the case where the UK resident company is under ‘non-resident control’. Broadly speaking, this would be the case if the company is a ‘close company’ under the control of any number of participators who are non-resident in relation to the chargeable transaction. For the purposes of determining whether a participator is non-resident, the more restrictive rules described above apply: ie the individual is UK resident for these purposes only if they have been present in the UK on at least 183 days in the period that begins with the day that is 364 days before the effective date of the transaction.

The rules for companies are complex, in particular because of the rules regarding control which apply a modified version of the ‘close company test’ in the Corporation Tax Act 2010. Advice should be sought on their application in any particular case.

However, in simple terms, the effect of the rules is that a non-resident individual cannot escape the 2% surcharge by purchasing a residential property via a UK incorporated company.


In many cases, it will be relatively straightforward to determine whether an individual is subject to the new 2% surcharge; in basic cases the test of residence is a far simpler test than the SRT. However, individuals should bear in mind that the fact that they are UK resident for income tax and capital gains tax purposes under the SRT does not necessarily mean they would be resident also for the purposes of these rules.

Similarly, UK resident trustees may find that they will be subject to the surcharge, for example because the life tenant is non-resident, or in the case of a discretionary trust, because there is one non-resident trustee.

Those thinking of purchasing a property through a company should pay particular attention to the rules because of their complexity and the fact that they can apply even to companies that are UK resident for corporation tax purposes.

The current multitude of SDLT rates and reliefs mean this is a complex area on which specialist advice should be sought.

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