‘Fundamentally wrong’ stamp duty surcharge on non-residents will ‘dampen market’

The government’s proposed surcharge on non-resident property buyers offers real reasons for concern. John Goodchild takes out his stamp duty calculator to explain

The government proposes to introduce a stamp duty (SDLT) surcharge on non-UK residents (both individuals and non-natural persons) purchasing residential property in England. The proposed level of the surcharge is to be 1 per cent in addition to the existing rates established by the official stamp duty calculator (which themselves can reach the 15 per cent level).

The stated objective behind the proposed surcharge is to help people to get onto the housing ladder. It is difficult to see how the surcharge would further that objective. There is no correlation between non-residents who purchase prime central London and valuable properties in the Home Counties and first-time buyers. A cynic might take the view that this is a further device to extract more tax from an already overtaxed market.

The likelihood is that the surcharge will dampen the market in important residential property although perhaps with a less profound effect than the 3 per cent surcharge when that was introduced in 2016.

The government has stated that one of its principles has been to try to make the test of non-residence applicable to individuals as simple to apply as possible. They therefore propose that an individual will be characterised as non–UK resident for the purposes of the surcharge if they spend fewer than 183 days in the UK during the 12 months preceding completion of the purchase. An individual would be treated as having spent a day in the UK if they are present here at midnight on that day.

In my firm’s submission on the consultation paper we have levelled a number of criticisms at the proposed test for individuals. Whilst the test is simplistic it would require a fact find and careful consideration. So, it would not be a straightforward matter for a specialist property lawyer to deal with.

Secondly, the limited test is fundamentally wrong because it would impose the surcharge on individuals who, by virtue of the more sophisticated statutory residence tests (that apply for income tax and capital gains tax purposes) are UK resident and, as such, already contributing to the UK Exchequer.

We have therefore proposed in our response to the consultation paper 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 he or she should be able to reclaim the surcharge. The consultation paper already made reference to a taxpayer’s ability to claim refunds by amending their SDLT return and we think that this proposal introduces greater fairness whilst not prejudicing the conveyancing process.

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One of the other proposals in the consultation paper that my firm has criticised relates to the application of the surcharge to companies. The government intends that the surcharge should not only apply to companies resident outside the UK but also to UK resident companies that are owned or controlled by non-UK residents. In our view ownership of real estate by UK resident company carries its own tax ramifications and a greater exposure to UK taxation in general. Consequently, we do not think that it is reasonable for the government to look beyond a UK resident company to its owners or participators.

The government seems to have made up its mind about imposing an SDLT surcharge on non-residents buying residential property in England. However, I hope that the responses of my firm and others will result in the government tempering its approach and incorporating greater fairness in the final version of the proposed new rules.