Stamp Duty trap awaits returning ex-pats

Non-UK resident purchasers of freehold or leasehold properties in England will pay an extra 2% Stamp Duty Land Tax (SDLT) on purchases from 1 April 2021. And this may also catch returning ex-pats.

Bishop Fleming’s Robert Bailey explains the implications of draft clauses in Finance Bill 2020-21

The government consulted last year on introducing a further 1% surcharge on SDLT rates to apply to non-resident property purchasers. Before the consultation concluded, the Chancellor announced that this would apply from 1 April 2021, but would be a 2% surcharge.

The draft legislation has now been published and the intention is that it will apply to any acquisition of a major interest (a freehold or a lease in excess of 21 years) costing £40,000 or more, where the purchaser, or one of the purchasers, is non-resident.

The effect is to increase every SDLT rate by 2%, so someone caught by both this and the additional 3% for second homes will be facing a 5% surcharge in total.

What is meant by non-resident?

The key question is what is meant by non-resident, and, in particular, whether returning ex-pats, coming back to the UK after a spell living abroad, will suffer a 2% surcharge on their purchase if they get their timing wrong. 

While SDLT applies only to England, with the Scots and Welsh having separate devolved taxes, the first step in the definition helpfully tells us that a non-resident is someone who is not UK resident in relation to the transaction. So those coming to England from Scotland or Wales can rest easy.

The basic rule is that someone is UK resident if they spend 183 days (six months) in the UK in any continuous period of 365 days in the “relevant period”.  The relevant period is the two-year period commencing 364 days before the completion date of the purchase and ending 365 days after. 

Note that this is not six months in two years but 6 months in any continuous 365 days within those two years. 

This is a far simpler test than that for direct taxes and it is perfectly feasible for someone to be classed as UK resident for income tax but non-resident for SDLT. 

Anyone buying in the UK having lived abroad will need to carefully count their days of UK presence for up to a year after purchase (watch out for your holidays), and there is a particular danger for anyone who buys in the UK before they actually return here permanently. 

Exceptions

The only helpful exceptions are

• Crown Employment – if a purchaser is in Crown employment and was abroad for the purpose of performing activities in connection with that employment, then the additional charge would not apply.
• Married couples - where two spouses (or civil partners) are buying together and one is working abroad while the other remains UK resident. 

Note that co-habitees get no relief.

Non-resident companies

Finally, non-resident companies are also caught, with various exceptions, but that is a story for another day.

As with much of recent SDLT legislation, a simple premise appears to have great scope to hit unintended targets, while many it is aimed at may slip through the net with a little preparation – or luck. 

Like the 3% surcharge for second homes, it is likely that additional reliefs will be added as time goes by, but such relaxations are rarely retrospective and the greatest danger is for recent non-residents buying in the UK early in the regime, before the message properly gets out and the full implications are clearly understood.

Robert Bailey or Scott Woolley will be able to advise further on this.