Increased Stamp Duty Land Tax for non-UK residents

24th July 2020 Commercial Litigation

On Tuesday the HMRC announced that increased SDLT rates will apply in England and Northern Ireland for residential purchases by non-UK residents from 21 April 2021. It has published draft legislation to bring this into effect along with draft guidance and the intention is to include this in the next budget.

This is not hugely surprising as the plans were originally announced in the 2018 Budget and a consultation was ran on the proposal last year. The intention is that revenue raised will be used to tackle rough sleeping and the measure will make house prices more affordable. There had been a hope that the impact of Covid-19 would make the government pull back from this measure but they had already made clear that they would not.

The measure provides that the SDLT rate applicable to non-UK residents will be 2% above the residential rates for UK residents. This uplift will be in addition to the existing 3% higher rate surcharge which is payable for the purchase of a second property.

The increased rate will apply to any individual who is not resident in the UK for at least 183 days in the year before and after the transaction. Where a buyer does not satisfy the residency criteria before the transaction, they will have to pay SDLT at the increased rate and apply for a refund if they satisfy the criteria in the 12 months following the transaction. The 183 days does not need to be consecutive and could in principle be spread across the entire 24 months around the transaction. The uplift also applies to non-UK companies and there is a more complex mechanism for working out the application of this.

The effects of this measure are hard to be clear about. Inevitably it has attracted some criticism and the suggestion is that it will reduce overseas investment into the private rented sector.

Overseas investment is a substantial element of the provision of private rented property, particularly in England. Inevitably, some people will argue that this drives up house prices but the reality is that this investment is a key part of the economics of many developments as many properties are sold abroad at an early stage. This investment provides rental property but it also provides property to purchase. In addition, the shortages of properties to rent and buy is so great and the level of demand so acute that any investment that increases supply is welcome. This is to say nothing of the general investment benefits to the UK.

However, similar comments were made when the 3% uplift for second properties was introduced. In fact, the uplift seemed to make little difference as many overseas investors obtained other stamp duty reductions by purchasing multiple properties and also benefitted from the weakening of sterling against other currencies so that they did not feel the effect of the uplift. Covid-19 and the continued push toward Brexit may well mean that a further 2% uplift does not have very much effect either. Only time will tell.

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David Smith is a Partner located in Londonin our Commercial Litigation department

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Neli Borisova is a Solicitor located in Londonin our Commercial Litigation department

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