A new 2% stamp duty surcharge will be introduced on 1 April 2021 for non-UK residents.

The extra charge for Stamp Duty Land Tax (SDLT) will apply to overseas buyers of residential property in England and Northern Ireland. It will affect you if you’re a non-UK resident buying a freehold or leasehold property on or after 1 April this year.

The new SDLT surcharge will be on top of the existing 3% stamp duty tax levied if you buy an ‘additional’ dwelling such as a second home or buy-to-let property. The surcharge will also increase the amount of SDLT charged on rents when a new lease is granted.

The Government is introducing the measure to help make house prices more affordable and it’s pledged to use the money raised to tackle rough sleeping.

What is Stamp Duty Land Tax?

You must pay Stamp Duty Land Tax (SDLT) if you buy a property or land over a certain price in England or Northern Ireland. (The tax is different if the property or land is in Scotland or Wales.)

You pay SDLT when you buy a freehold property, a new or existing leasehold, or a property through a shared ownership scheme. The tax also applies when you take on a mortgage or buy a share in a house.

What about the stamp duty holiday?

A stamp duty ‘holiday’ was brought in last summer to help stimulate the housing market after the first wave of the Covid-19 pandemic.

The scheme means buyers don’t have to pay SDLT on the value of a home up to £500,000, instead of the usual threshold of £125,000.

The temporary measure is due to end on 31 March 2021, but it’s been reported the Chancellor, Rishi Sunak, has decided to extend the holiday by three months. If so, Mr Sunak could announce the extension in the Budget on Wednesday 3 March.

Be prepared for the SDLT surcharge

Whatever happens in next week’s Budget, you should be prepared for the new SDLT surcharge if you’re a non-UK resident buying a residential property in England or Northern Ireland.

A specific new test for residence has been drafted to help you determine whether the surcharge applies to you. But the Statutory Residence Test (SRT) – the usual test for determining UK residence status – won’t apply.

Will you be affected by the new surcharge?

The new Stamp Duty Land Tax surcharge will apply when you buy a residential property in England or Northern Ireland if you or one of the buyers isn’t a UK resident.

For the purposes of this surcharge, you’ll be treated as a UK resident if you’ve been in the UK for at least 183 days in any continuous period of 365 days. This period must fall within the two-year window that starts 364 days before you buy the property and ends 365 days after it.

Who doesn’t it apply to?

The surcharge won’t be levied when you buy a home jointly with your spouse or civil partner and you live together, if one of you is a UK resident.

And the extra charge won’t apply to you and your cohabiting spouse if you’re employed by the Crown when either of you buys the property.

You should also note there is a separate residence test for other instances, for example if you or one of the buyers is a company. And there are certain transactions where the surcharge won’t apply, including for purpose-built student accommodation.

Advice for overseas buyers

If you’re a non-UK resident, it’s important for you to fully understand the tax implications of buying a home in the UK.

The new stamp duty surcharge is the latest in a long line of changes to the ownership of UK properties by non-residents.

If you’re an overseas buyer, you should seek UK tax advice before you make your purchase.

At Churchill Taxation, our property tax specialists are ready to help you prepare for your purchase of UK property. Call us today on 07813 434195 or email stephanie.churchill@churchilltaxation.co.uk

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation