2% SDLT surcharge about to kick in

The issue

From 1 April 2021 non-UK residents will face a 2% hike in SDLT for purchases of residential property. This is harsh but simple because it applies irrespective to what other rates or surcharges may apply. Therefore if a company already faces the punitive 15% rate (for example because a shareholder will live in the property) then the rate would increase to 17%. Likewise any 3% surcharge will effectively increase to 5%.

The interesting point about this surcharge is that an individual is non-resident based on days in the UK rather than the Statutory Residence Test. This can lead to some odd results, particularly in these strange times where individuals may have found themselves stranded overseas for large periods of time.

When the rules bite


An individual will need to determine whether he is non-resident for the purpose of these rules and the key considerations here are as follows:

1. He will be regarded as being UK resident if he spends more than 182 days in the UK in any continuous 365 day period, starting 12 months before the effective date (usually completion) and ending 12 months after it. This means that there will be times when the purchaser will be non-resident at the effective date but may later meet the conditions to be UK resident. In this case he will have to pay the surcharge but will be able to claim it back later.

2. Although there is an exemption for Crown employees there is no general exemption for ‘UK residents’ on an overseas posting.

3. Generally, if just one joint purchaser is non-UK resident then the surcharge applies to the whole transaction. This general rule is displaced for spouses and civil partners where the surcharge will not apply, if at least one of them is UK resident.


The rules for companies are also a bit ‘different’ and are as follows:

1. Generally treated as UK resident if incorporated in the UK, has effective management and control in the UK or is deemed resident in the UK under a double taxation agreement.

2. BUT…….it will be treated as non-UK resident if it is directly, or indirectly, controlled by non-UK residents.


1. For ‘bare trusts’ the rules will be dictated by the individual rules as they relate to the beneficiary.

2. In an interest in possession trust where an individual is entitled to occupy the dwelling for life, again the position will be dictated by the status of that individual.

3. For discretionary settlements, the position will be dictated by the status of the trustees following rules above as appropriate (although here, no UK residence after the effective date can be taken into account for individual trustees).

Forbes Dawson view

This is another kick in the teeth for international purchasers of UK residential property. It does seem counter-intuitive that a UK resident company can be subject to the surcharge just because it is controlled by foreign shareholders. This scenario could now be quite common given the fact that many of the benefits of operating UK property businesses through offshore companies have now been eroded. Where very valuable property is involved, there may be incentives for a controlling shareholder to spend 183 days in the UK in the 365 days following a transaction – and with careful planning he may be able to avoid becoming UK resident for the purposes of other UK taxes!




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