What is a non-resident surcharge? A complete guide…

Posted 02nd September 2022 by ctatax-admin

Cornerstone Tax is the UK’s leading property tax advisers, specialising in Stamp Duty Land Tax. We’ve reclaimed over £15 million in overpaid SDLT in the last 12 months. Contact us for property tax advice, or to see if you are eligible to claim a refund from HMRC on overpaid Stamp Duty

Introduced in the Spring Budget in 2021, the 2% Non-Resident Surcharge presents yet another hurdle for property buyers and investors to negotiate. Think it doesn’t apply to you? Read on!

Non-Residence

‘The test used to establish whether a buyer is non-UK resident in relation to the transaction depends on who the buyer is. Nationality, citizenship or residence status under the UK Statutory Residence Test are not relevant for this purpose.’ Gov.uk website

Yes, it doesn’t matter for the purposes of this charge whether you are a U.K. national, have U.K. citizenship or pass the UK Statutory Residence Test. The relevant factor is the number of days that you have been in the U.K in the past twelve months – One Hundred and Eighty Three, to be precise. If you have been present in the U.K for at least that many days in the twelve months prior to the Effective Transaction Date, then you will not be subject to the charge.

Read: 5 ways you can save on your Stamp Duty Land Tax bill

Bear in mind though, that in the case of multiple buyers who are unmarried and not in a civil partnership, one buyer counting as non-resident makes all buyers non-resident by association, and will incur the surcharge. This includes business partnerships.

Finally, despite the surcharge applying only to transactions in England and Northern Ireland, you will satisfy the residency requirements by 183 days spent anywhere in the U.K in the preceding 12 months.

Type of Property

The surcharge applies only to residential property, so acquisitions of non-residential property (warehouses, shops etc) are exempt.

Mixed use property is also explicitly exempt from the surcharge, for example if you were to buy a property which consisted of a shop with a flat above it, the surcharge would not apply, even if you were non-resident for the purposes of the relevant test.

Acquisitions of six or more properties at one time, for example a block of flats, would also be exempt, BUT if you claim Multiple Dwellings Relief on the transaction then mixed-use or six or more is irrelevant and the Surcharge will apply to the average figure arrived at for the purposes of calculating the MDR SDLT liability.

Read: How to tell if you’ve overpaid on Stamp Duty Land Tax

Type of Buyer

As with most elements of the SDLT process, the type of buyer is very relevant to the eventual outcome. If you are a married couple or civil partners buying a property and one of you has been resident in the UK for 183 day out of the last 12 months, then you will both ‘count’ and be exempt from the surcharge.

As above, business partners in the same scenario would attract the surcharge.

Corporate Buyers will be Non-Resident for the purposes of the Surcharge if not U.K. resident for Corporation Tax purposes at the effective date of the transaction. U.K. Resident companies under the control of Non-U.K. Resident persons may be treated as Non-Resident for the purposes of the surcharge in certain circumstances.

Reliefs and Refunds

Certain reliefs do apply, the most important of which is the Crown Employee Relief, which covers civil servants, military personnel, and diplomats among others, allowing for these individuals to be outside U.K Territory at the effective date of the transaction as long as they are so due to that employment.

If caught by the Surcharge, there is always the possibility of a refund, provided that in a two year period commencing 364 days before the effective date of the transaction and ending 365 days after the effective date of the transaction, you can demonstrate 183 days spent in the U.K.

Read: A guide to mixed-use developments

The Tip of the Iceberg

What we have covered here represents a mere fraction of the complexities surrounding this latest addition to the SDLT legislation, and to truly be certain of your position the best course of action will always be to seek the advice of an expert on your particular purchase and circumstances – failure to do so could prove costly in the long run.

Cornerstone Tax is the UK’s leading property tax advisers, specialising in Stamp Duty Land Tax. We’ve reclaimed over £15 million in overpaid SDLT in the last 12 months. Contact us for property tax advice, or to see if you are eligible to claim a refund from HMRC on overpaid Stamp Duty