New SDLT rate from 1 April 2021 – Non-Resident Surcharge
The SDLT ‘holiday’ that can save up to £15,000 on the purchase of a house or other dwelling was due to end on 31 March, but has been extended to purchases completed on or before 30 June 2021. For completions in the following three months a saving of up to £2,500 is available, and first-time buyer relief comes back. On 1 October 2021 normal rates resume.
Non-resident surcharge (NRS)
Peter works for an international company. In July 2021 he is sent to one of its overseas offices on an 18-month secondment, so he vacates his rented flat in the UK. A house in the area he wants to live becomes available, so he buys it in April 2022 for £500,000, and lets it to a friend until he gets home at the end of 2022. As a first-time buyer he expects to pay SDLT of £10,000, but is shocked to find that he must pay £20,000. Why?
A 2% non-resident surcharge was introduced on 1 April 2021. It adds 2% of the total price to whatever SDLT a UK resident would pay. It also increases SDLT on rent.
NRS has nothing to do with nationality. It applies if the buyer has not lived in the UK (England, Wales, Scotland or Northern Ireland) for more than half the year ending with completion of the purchase. When Peter completed his purchase he had been living abroad for 9 months, so had to pay NRS. Peter could have reclaimed the £10,000 surcharge if he lived in the UK for 183 days or more during the year after his April completion, but as he will not get home for 8 months, that will not be possible.
If you buy a house or other dwelling we now have to ask if any buyer will have spent 183 days or more outside the UK (so is non-resident) in the year ending with completion of the purchase. A day has to include the last second of the day. One who arrives in the UK at 0005 Saturday morning and leaves at 2355 Sunday evening, spends one day, Saturday, in the UK. One who arrives at 2355 Friday night and leaves at 0005 Monday morning spends 3 days (Friday, Saturday and Sunday) in the UK.
How do you prove where you have been living? Aside from hotel bills and travel tickets the authorities will want to look at bank and credit card statements; telephone and mobile phone bills; other bills that may demonstrate where you have been, like utility bills; work diaries and planners and time sheets; membership and use of sports, health and social clubs.
If you are buying through a private company, we will need to know whether any shareholder is non-resident, as that could mean the company is non-resident even if the person is a minority shareholder. If a family trust has an overseas trustee (in the Channel Islands or the Isle of Man, for example) the trust is likely to be non-resident. Companies and trusts that pay NRS do not have any right to reclaim it, even if circumstances change after completion.
The SDLT return must now state whether a buyer is or is not UK resident.
There are some cases where NRS does not apply.
Marriage and civil partnership
If the relationship exists on completion day and has not broken down, the spouse or civil partner of a UK resident will be treated as UK resident also. This exception does not apply to any other type of relationship.
A member of the Armed Forces, or some other Crown employee who must pay UK income tax even when working abroad, can claim Crown exemption from NRS. The exemption includes the employee’s spouse or civil partner (wherever they live) so long as the relationship has not broken down. Exemption must be claimed on the SDLT return.
NRS does not apply to a new lease for 7 years or less, or the purchase of a longer lease that only has 7 years (or less) left on the day the purchase completes. Nor does it apply to low-cost transactions (under £40,000) unless it is a new lease where the rent is £1,000 or more, or will be in the future (by doubling every few years, for instance).