Aimed at reducing house-price inflation to get first time buyers onto the property ladder, the overseas buyers Stamp Duty Land Tax scheme was introduced on 1st April 2021. The scheme sees non-UK resident individuals and corporations pay a 2% Stamp Duty Land Tax (SDLT) surcharge on residential property in England and Northern Ireland.
Who is affected?
Only non-UK resident individuals and corporations are affected by the overseas surcharge. A test has been created especially for this scheme, to determine whether someone is non-UK resident for SDLT purposes.
A person will be UK resident if they have been present in the UK for 183 days in the twelve months before the purchase completes. It is not necessary that these 183 days be consecutive. In this way, a person’s citizenship, nationality or leave to remain have no bearing on the SDLT scheme.
If an individual is purchasing together with a spouse or civil partner, and only one of them meets this requirement, both are deemed to be UK resident.
In the opposite way, if a group of buyers are neither married nor in a civil partnership, and at least one of them is non-UK resident, the whole group is deemed non-UK resident. The same rule is applied to partnerships in the commercial sense, wherein the residency status of the partners decides that of the partnership as a whole.
Different and more complex rules apply to companies and trusts.
Which property applies?
The overseas surcharge only applies to residential property in England and Northern Ireland. Non-residential property and mixed property transactions are not caught by the scheme (except where multiple dwellings relief is being claimed). Separate schemes apply to property in Scotland and Wales.
Residential property is defined in law as being ‘a building that is used or suitable for use as a dwelling, or is in the process of being constructed or adapted for such use; and land that is or forms part of the garden or grounds of [such] a building’.
The surcharge applies to both freehold and leasehold property.
How much do I pay?
SDLT is paid in bands of different rates linked to increasing property values. For example, a UK resident buying a £300,000 property with no reliefs or surcharges would pay 0% SDLT on the first £125,000, 2% on the next £125,000 and 5% on the remaining £50,000 (at the time of writing). This would give a total SDLT liability of £5,000.
The overseas surcharge introduces two additional percentage points to each band of SDLT. So if the buyer in the above example were non-UK resident, they would pay 2% on the first £125,000, 4% on the next £125,000 and 7% on the remaining £50,000. This would give a total SDLT liability of £15,750.
Sometimes higher rates or exemptions apply regardless of the overseas surcharge, such as the additional property surcharge and First Time Buyers’ Relief (FTBR) respectively. The overseas surcharge is added on after any applicable higher rates and exemptions.
For example, if our earlier UK resident were a first time buyer, they would not pay any SDLT thanks to FTBR. If they were non-UK resident, they would still benefit from FTBR, but would pay a rate of 2% on the whole purchase price, incurring £6,000 SDLT.
Refund of the surcharge
The overseas surcharge can be recovered within two years of the purchase if the buyer can show that they became a UK resident after they bought the property. To successfully claim this refund, the buyer must have been present in the UK for 183 days within a single twelve-month period. This 12-month period must take place within the two years:
- beginning 364 days before the purchase completed; and
- ending 365 days after the purchase completed.
To use our ongoing example, let us imagine our overseas buyer purchased the property on 30 September 2021. They had not been to the UK at all since 1 October 2020 (364 days before the purchase completed). To qualify for a refund, they need to spend at least 183 days in the UK by 30 September 2022 (365 days after the purchase completed).
If they started living in the property permanently from the day of completion, they would become a UK resident for SDLT purposes on 1 April 2022. They then have until 30 September 2023 to make their claim for a refund.
Reliefs and Exemptions
Certain individuals might ordinarily be considered UK residents, but their work prevents them from meeting the SDLT residency test. HMRC have therefore introduced a full relief from the surcharge for individuals in Crown employment, provided they can link their absence from the UK to the requirements of their employment – e.g. those serving in the armed forces, civil servants or diplomats. The relief extends to the spouse or civil partner of a person in Crown employment.
For more information on the overseas surcharge, visit HMRC’s useful guidance note at https://www.gov.uk/guidance/ra...