The ATT is concerned that a proposed increase in stamp duty for non-UK residents buying residential property in the UK will have an impact beyond its intended target of foreign investors.
The ATT’s concerns are set out in a response to a recent HMRC consultation. The consultation proposes that non-UK residents purchasing residential property in England or Northern Ireland will be charged an additional one per cent Stamp Duty Land Tax (SDLT). A final date for the introduction of the extra charge is yet to be confirmed. The objective of the measure, according to the consultation document, is to help control house price inflation and assist UK residents to get on the housing ladder.1
Michael Steed, Co-Chair of ATT’s Technical Steering Group, said:
“We are concerned that the proposal will have an impact beyond non-UK resident investors, and is not in line with the policy aim of helping UK residents to get on the housing ladder.
“Under the proposal, the additional rate will apply to joint purchases of property if either of the purchasers are non-UK resident. This means that the measure will 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, will 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 what the couple wish.
“Individuals looking to return to the UK who acquire property more than six months in advance of their return will also be unable to obtain a refund of the extra SDLT that they had been required to pay.”
The ATT is also concerned that the measure proposes the use of a different residency test to that used for income tax purposes.2 Having two separate residency tests will both introduce further complexity and cause confusion, since it is possible that an individual could be resident for income tax purposes but not for SDLT purposes. The ATT questions whether it is reasonable that an individual who is resident for income tax purposes should pay the higher SDLT charge.
Notes for editors
1. The ATT’s submission and the consultation document can be found here.
2. 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 is 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.