Spouse rules for the 2% SDLT surcharge

In this week’s Tax Bite we discuss some of the nuances of the spouse rules contained within the new non-resident SDLT surcharge.

The issue

See here for a previous tax bite on the rules surrounding the 2% stamp duty land tax (SDLT) surcharge for non-residents. This explains how, from 1 April 2021, a 2% surcharge applies in relation to UK residential property which is acquired by a non-resident.

The key rules which are of relevance to individual purchasers are as follows:

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

2. The default position for joint purchasers is that if just one of them is UK resident then the surcharge will apply.

3. However, this default position does not apply where the joint purchasers are married (or in a civil partnership).  In this case, the position can follow that of the resident spouse (including the possibility of making a reclaim). However this concession does come with some important small print.

The ‘small print’ for married/civil partnership couples

The main requirements for the concession to apply are as follows:

1. The couple need to be living together at the effective date (and this has a broad definition).
2. Each individual must be jointly entitled to the interest acquired.
3. Neither of the spouses or civil partners is acting as a trustee of a settlement.

Many commentators are taking this to mean that if one non-resident spouse is solely included on the legal documentation then a resident spouse (not included on the documentation) cannot be used to mitigate the surcharge. There seems to be some ambiguity here, because it seems arguable that both spouses could still have beneficial entitlement to the property, even if they are not included on the legal documentation.

Forbes Dawson view

To be on the safe side, where possible, a resident spouse should be included on sale documentation, where reliance is to be placed on them to mitigate the 2% surcharge. However, in cases where this has not been done, I think that there is still a sound basis to argue that the special spouse rule applies – as long as both spouses have a beneficial interest in the property. The ‘trustee of a settlement’ point (above) should not prevent this argument succeeding because a bare trust (which is the case here) does not count for these purposes as a settlement.

 

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