Stamp Duty Land Tax: Non-UK resident surcharge consultation

3 May, 2019
by: Cripps Pemberton Greenish

Please find below our official response paper to the Stamp Duty Land Tax: Non-UK resident surcharge consultation which was submitted on Friday 3 May 2019. For further information on the consultation, please click here.

 

1.   Do you have any views on the proposed SDLT residence test for non-UK resident individuals?

We understand the need for a test that is simple to apply but even the proposed test will require a fact find and careful consideration.   It would not be a straightforward matter for a specialist property lawyer.

 We believe that the limited test proposed is fundamentally wrong because it will impose a tax charge on those who, by virtue of the existing statutory residence tests, are UK-resident and as such contributing to the exchequer, which cannot be in line with the overall policy intention.  Furthermore it creates uncertainty for UK taxpayers thereby directly undermining the original policy objective behind the introduction of a Statutory Residence Test of creating greater certainty.

 We therefore propose that if an individual is found to be UK tax resident during the fiscal year in which the transaction occurs by virtue of the statutory residence tests there should be an ability for him to reclaim the surcharge.  The consultation paper makes reference to a taxpayer’s ability to claim refunds by amending their SDLT return and we do not see why the ability to amend should not extend to cases where the taxpayer has subsequently been determined to be resident in the UK for income tax and capital gains tax purposes according to the statutory residence rules.

 This proposed ability to amend would not prejudice conveyancing transactions when the purchaser’s status had not been determined and the burden of the work involved to obtain the refund would fall upon the taxpayer.

 The ability to amend would need to extend for a period which was consistent with the timescales involved in resolving the residence status of taxpayers for the purposes of the other taxes under the statutory residence rules.  We feel that 24 months from the date of the transaction would be too short and we would suggest 4 years from the date of the transaction. 

 

2. Would you prefer to see a different residence test applied? If so, what test and why?

No, provided the Government gives individual taxpayers the right to amend their SDLT return on the basis that we have outlined in our response to question 1. 

 

3. How will the proposed surcharge on residential properties affect purchase decisions of non-UK resident individuals in England and Northern Ireland?

It will have a dampening effect on the prime London residential property market and similar markets in the Home Counties.  The surcharge will either be the final factor that persuades non-residents not to buy property in those areas or they will seek to pass on the additional cost to vendors.  As such, the surcharge will not be good for those markets and, one might say, the London economy generally. We also question how the surcharge can help encourage home ownership at lower rungs in the market.

 

4. Do you agree that a rate of 1% for the surcharge strikes the right balance between the government’s objectives on home ownership and the UK remaining an open and dynamic economy?

As you will deduce from our answer to question 3 we do not believe that the surcharge is a positive in any sense. 

 

5. Do you have any views on the proposed company residence test for the surcharge?

No.

 

6. Would you prefer to see a different residence test applied? If so, what test and why?

No.

 

7. Do you have any views on non-UK resident individuals using UK resident companies to purchase residential properties?

This response is in relation to Questions 7 to 12. 

 The proposal to apply the surcharge to a UK resident company owned or controlled by non-residents involves adding unnecessary complexity and material to the SDLT legislation.

Ownership of real estate by a UK resident company carries its own tax ramifications, and generally a greater exposure to UK taxation, and, so, is not a decision that would be taken by participators lightly. They are unlikely to contrive the use of a UK resident company simply to avoid such a surcharge and therefore we think that proposals are misguided.

 

8. Do you have any views on the suitability of using the close company test as the basis for determining whether a company is under the control of non-UK resident persons?

See above.

 

9. Do you have any views on applying the attribution of rights rules at section 451 CTA 2010 between persons of differing residence status?

See above.

 

10. Do you have any views on potential problems which might arise when using the definition of control at section 450 CTA 2010?

See above.

 

11. Do you have any views on whether any of the exemptions at S442 to S447 CTA 2010 should remain in place or be removed for the purposes of the surcharge?

See above.

 

12. Would you prefer to see a different test applied? If so, what test and why?

See above.

 

13. Do you have any comments on the proposed treatment of partnerships as joint purchasers?

No.

 

14. Do you think there should be different test applied for purchases by partnerships? If so, what test and why?

No.

 

15. Do you have any views on the proposed SDLT treatment where the acquisition is made by a trust?

Only in relation to the issue raised by question 16. 

 

16. Do you agree that the Statutory Residence Test for individual trustees will work for SDLT if references to tax year are replaced by references to the 12-month period ending with the date of the transaction? If not, why not? What alternatives would you propose?

Yes, but subject to the same point that we make in relation to question 1.

 

17. How will the proposed surcharge on residential properties affect purchase decisions of non-UK resident non-natural persons (companies, trusts and partnerships) in England and Northern Ireland?

Please see our answer to question 3.

 

18. Do you have any comments about the proposed reliefs from the surcharge?

No.

 

19. Are there any other categories of individual which you think the Government should consider providing a relief for and, if so, why?

No.

 

20. Do you have any views on the proposed refunds available for those who have paid the surcharge?

No.

 

21. Do you have any views on the criteria the government is suggesting determining whether a purchaser would be eligible for a refund?

No.

 

22. Do you have any views about how the reliefs will apply in relation to the surcharge?

No.

 

23. Do you have any views on the proposed treatment where there is an interaction between existing SDLT rules and the surcharge?

No.

 

24. Do you have any views on the proposed approach for administration and compliance for the surcharge above?

Please see our response to question 1. 

 

25. Are there any other changes to the administrative and compliance provisions in SDLT that the government should consider changing for the purposes of the surcharge?

Please see our response to question 1