In today’s Budget, the Chancellor confirmed that additional two per cent Stamp Duty Land Tax (SDLT) will be introduced for non-UK residents buying residential property in England and Northern Ireland1 from 1 April 2021. The ATT has highlighted the potential for this measure to have an impact beyond its intended target of foreign investors and is urging the Government to make sure the measure is carefully targeted.
The objective of the two per cent charge, according to Budget documents published today,2 is to help control house price inflation and assist UK residents to get on the housing ladder. Money from the measure will be used to address rough sleeping. The ATT commented on the original consultation in May 2019,3 and raised concerns over both the potential for unintended consequences and some of the practicalities.
In the original consultation, the Government proposed that the additional charge would apply to joint purchases of property if either of the purchasers are non-UK resident. This would affect couples who wish to purchase a house together in the UK, with one of them intending to live in it immediately but the other currently living or working abroad. In addition, a couple who currently own a home in the UK, but where one party already works abroad, could be affected if they move house and the non-resident spouse remains working overseas. While they could avoid the issue by buying only in the name of the UK resident spouse, this may not be practical for mortgage purposes nor be how the couple want to own their property.
Jeremy Coker, President of ATT, said:
“We are concerned that it will be difficult to restrict this additional charge to the intended target of overseas investors, and we hope that the issue will be addressed in the final legislation.”
The ATT is also concerned about how such a measure will work in practice. In order to charge non-residents more, it is necessary to determine who is a non-resident. The current test for income tax determines someone’s residence status at the end of the tax year, and may not therefore help someone understand their position at the point in a tax year when they are purchasing a property.4
Jeremy Coker continued:
“If the end result of the additional charges is two separate residency tests – one for SDLT purposes and another for income tax - this will both introduce further complexity and cause confusion as an individual could be resident for income tax purposes but not for SDLT purposes.
“Fortunately, as the measure won’t be introduced until 1 April 2021 we do have some time to work to minimise any unintended consequences and we look forward to engaging with HMRC in the coming months.”
Notes for editors
1. Scotland and Wales each have separate alternatives to stamp duty land tax.
2. The measure is confirmed at 2.212 of the ‘Red Book’ – Budget 2020.
3. The ATT’s set out its concerns in response to a 2019 consultation which can be found here.
4. The ATT says that the key practical difficulty with the proposed measure is that a test of residency – which is generally established for a given period – is now being added to a tax on a transaction, which takes place at a point in time. This requires the creation of a new residency test for SDLT purposes.Residency for income tax purposes is determined by looking at the days spent in the UK over a tax year, together with other factors. For an individual, since a residential property transaction could occur before residency is determined for the tax year, the proposal in the 2019 consultation was to look at residency over an entirely different period – the 12 months ending with the effective date of the transaction for SDLT purposes. An individual who has spent less than 183 days in the UK during this 12-month period will be subject to the charge. The individual can then claim a refund if they are in the UK for 183 days or more in the 12 months following purchase.
While it is necessary to come up with a way of determining residency at the time of the transaction, the proposal introduces complexity for individuals who may not appreciate that while they are resident for income tax purposes, they are not for SDLT.