On 31 March 2021, the government’s recently introduced “SDLT holiday” which increased the thresholds on which stamp duty land tax (SDLT) is payable, from £125,000 to £500,000, will come to an end.

For purchasers waking up on 1 April 2021, not only will the standard rates of SDLT apply once again, but a new 2% surcharge (in addition to the current residential rates) will be imposed on non-UK resident buyers of residential property.

Until now, the buyer’s place of residence has not been relevant to the level of SDLT payable on a purchase. However, in a move to prevent UK property prices from being driven up by foreign investors, the government is set to introduce the new surcharge which could see purchasers pay up to 17% in SDLT.

For overseas investors interested in buying UK residential property, the next six months will be crucial.

Here we address a number of FAQs:

Who does the 2% surcharge apply to? 

The new rules will apply to non-UK residents. UK resident close companies that meet the proposed non-UK control test will also be caught.

What is the definition of a non-UK resident? 

For the purpose of determining if an individual purchaser is UK resident, a person who has spent fewer than 183 days in the UK during any continuous 365-day period in the period which begins 364 days before the effective date of the transaction (usually completion) and ends 365 days after that date, will be non-resident. 

The residence test for companies is the ordinary corporation tax test, subject to the point made above regarding close companies.

What if I become UK resident after completion? 

There will be a period of 2 years following the effective date of the purchase in which an individual buyer may amend their SDLT return and claim repayment of the 2% surcharge. To qualify, the purchaser must have satisfied the residence conditions mentioned above in the 12 months following the effective date of the transaction.

Does the 2% surcharge apply to all UK property?

All property in England and Northern Ireland will be affected by the new rules. Scotland and Wales have their own regimes (although a similar charge could be introduced in the future).

What if I am already liable to pay the 3% surcharge on “additional property”? 

Non-UK resident buyers who are already caught by the 3% surcharge (such as individuals who purchase a second home (and are not replacing their main residence) or a buy to let investment) will pay the 3% surcharge for additional property plus the 2% surcharge for overseas buyers, on top of the standard rates.

What if I am a company purchaser and already liable to pay the 15% flat rate of SDLT? 

For company purchasers which are subject to the 15% flat rate, the 2% surcharge (if applicable) will apply on top of the 15% rate, resulting in a potential tax liability of 17%. Those which qualify for relief from the flat rate (for example, property investment companies) will normally pay 2% on top of the higher rates of SDLT.

What if I exchange contracts before 1 April 2021 but complete after that date? 

SDLT is charged according to the position as at completion (or earlier substantial performance), therefore if you complete on or after 1 April 2021 and you are within the scope of the surcharge, you will be caught by the new rules, unless you exchanged contracts before 11 March 2020, in which case it may be possible to avoid the surcharge.

SDLT and the issue of tax residence are increasingly complex areas of law on which purchasers are advised to take legal advice. Our specialist property and tax lawyers would be pleased to assist.

Rebecca Day

, Associate (Private Property)

Helen Coward

, Partner (Tax)