July 2, 2021

Stamp Duty Land Tax: Understanding the 2% Non-Resident Surcharge

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We may have bid adieu to the much-reprieved SDLT holiday on the 30 June 2021, however, buyers will still benefit from reduced rates until the 30 September 2021, with a nil rate band of £250,000, and of course we welcome back first-time buyer relief.

Here, we briefly explore the 2% Non-Resident Surcharge (NRS) which was introduced from the 1 April 2021.

What is NRS?

NRS is 2% of the purchase price and only applies to the purchase of a dwelling or dwellings and turns on residence, not nationality.

You will have most likely noticed the introduction of three new questions on the SDLT1 Forms, which are compulsory for residential transactions:

  • Are any of the purchasers non-UK resident?
  • Are any of the purchasers a UK resident close company controlled directly or indirectly by a non-UK resident?
  • Are you claiming Crown Employment Benefit? (If you are non-UK resident due to performing duties for the purposes of your employment under the Crown, NRS relief is available. This relief is also extended to the spouse or civil partner of a Crown servant, provided they are not separated).

Are you a non-resident?

For NRS purposes, a non-resident is a non-UK resident. The UK includes Great Britain (England, Wales & Scotland) and Northern Ireland.

An individual is a UK resident for the purposes of NRS if they have been present in the UK at least 183 days or more in the 12 months before the completion date of the purchase. The 183 days do not have to be continuous, but those 183 days must all fall within 365 consecutive days. If one is present in the UK at the end of a day (midnight), then that day counts.

UK resident close company controlled by non-UK resident

A company is non-resident if either of the below conditions are met on the completion date:

  • Not UK resident for Corporation Tax purposes.
  • A close company which meets the non-UK control test and is not an excluded company.

Most private companies are close companies, and the meaning of one can be found here, where the non-UK control test is also explained.

If any participator in the company who has control, or to whom control is attributed, has not been resident in the UK on at least 183 midnights in the 365 days preceding the completion date, then the company is non-resident.

Control is defined in the Corporation Tax Act 2010 (s. 448, 450 & 451) as an individual who exercises, is able to exercise or is entitled to acquire direct or indirect control over the company’s affairs (more than 50%). Under s.451, the individual’s rights and powers may be attributed to an ‘associate’, which is defined in s.448. For NRS purposes, however, there are changes to the normal attribution rules:

  • There is no attribution between business partners, or between spouses or civil partners, as there usually is.
  • A de minimis rule prevents attribution of rights and powers in a company where the associate holds less than 5%.

Reclaims for Individuals

Individuals have a respite over corporate bodies in that they may be able to reclaim NRS if they become UK resident after paying the surcharge on completion.  Therefore, if the individual can show 183 days UK residence within the following 365 days after completion, NRS may be reclaimed by submitting an amended return during a 2-year period from the completion date.

However, if the purchasers are joint purchasers, and just one of them is non-resident, NRS is payable. The exemption to this is where the purchasers are married or civil partners and living together for tax purposes – in this case, if one of the individuals is UK resident but the other is not, NRS is not payable. Please note, the rules differ for trustees of a settlement.

SDLT and the NRS rules are a complicated area of tax, therefore, please seek advice from a tax specialist if you are unsure and require assistance.

If you would like to discuss this or any other property law related query, please do not hesitate to contact our team here at Aston Bond.