In February 2019, motivated by the Government’s drive to limit house price rises, HMRC published a consultation document on the introduction of a stamp duty land tax (SDLT) non-resident surcharge. The proposal will apply to purchases of residential property in England and Northern Ireland by non-UK resident individuals and non-natural persons and will impose an additional 1% rate of tax on top of existing SDLT rates.
In the name of simplification, the proposed residence test for individuals is a UK day count; an individual will be treated as a non-UK resident if they have spent fewer than 183 days in the UK during the period of 12 months ending with the date of the transaction in question. However, an individual who subsequently spends at least 183 days in the UK during the 12 month period starting on the date of the transaction in question, will be eligible for a refund of the surcharge paid. For day counting purposes, a day will be deemed to have been spent in the UK if the individual was present in the UK at midnight.
Whilst in isolation, the residence test is straightforward enough, the current proposal does open the possibility of an individual to be treated as UK resident for income tax and capital gains tax purposes (under the statutory residence test) but non-UK resident for SDLT purposes and arguably, this could give rise to inequality, confusion and complexity in the tax system. Responses to the consultation are calling for the definition to be reconsidered. Moreover, those acquiring residential property in anticipation of a return to the UK following a period of non-residence will not be able to purchase too far in advance, as this may prevent them from claiming a refund at all.
The consultation confirms that the surcharge will apply to joint purchases if any of the purchasers are non-UK resident. The implications for a married couple, or those in civil partnership, where one half works abroad and the other remains in the UK could be very unfavourable. The proposal does include a concession where that a property bought solely by a UK resident will not give rise to the surcharge even where their spouse is non-UK resident but this approach may not be desirous for those concerned, and perhaps more crucially, may pose challenges for obtaining mortgages where only one party to the marriage or civil partnership owns the property.
The refund process will require an individual to submit an amended SDLT return to HMRC within an extended amendment window of 24 months.
The reliefs currently proposed from the surcharge are sparse; the Government is considering an upfront relief for Crown employees who are non-UK resident at the time of the transaction but are nonetheless subject to UK income tax. A response by the Chartered Institute of Taxation to the consultation has suggested relief should be extended to employees on a fixed term secondment overseas in the private sector who are also subject to UK tax but whether this will be accepted is unclear at this stage.
With a budget date of 11 March 2020 recently announced, it is possible that the introduction of the proposed changes will come into effect sooner rather than later. Non-UK residents looking to purchase property in the immediate future should therefore be mindful of the proposal and consider their options carefully.
At PKF Francis Clark we have a dedicated team of SDLT experts who are on hand to provide analysis, planning and compliance to UK and non-UK residents. Please get in touch if you have any queries.
This blog is the latest in our series of pre-Budget articles on what may be announced on 11 March and potential outcomes. To read more, visit our Budget 2020 page of our website found here.