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Non-UK residents to face Stamp Duty Land Tax increases

At the Conservative Party conference the Prime Minister announced proposals for a Stamp Duty Land Tax (SDLT) surcharge for foreign buyers of UK property, to be discussed in the upcoming Budget.

This could be an extra 1% or 3% on top of the existing SDLT charges, with the proceeds being spent on tackling the current issue of rough sleeping in the UK.

It is not clear exactly which individuals will be considered to be “foreign” buyers, although the Conservative Party website states that they are increasing SDLT for “individuals and companies not tax resident in the UK”.

No indication has been given of how soon the new surcharge might be introduced, so non-UK residents who are in the process of acquiring UK land may wish to consider bringing their purchases forward as far as possible.

This announcement follows a number of recent and proposed tax changes in relation to non-residents owning UK property. In most cases, a non-UK domiciled person’s non-UK assets are 'excluded property' and fall outside of the inheritance tax (IHT) net.

However, since April 2017, shares in foreign 'close' companies (broadly companies controlled by 5 or fewer shareholders) and interests in partnerships are regarded as UK assets; to the extent that their value is attributable to a UK residential property interest. It is therefore no longer possible to shelter UK residential property from IHT by 'enveloping' it within a non-UK company. Where a non-UK domiciled individual owns a commercial UK property through an offshore company, there is still no charge to IHT on a transfer of the company shares.

The scope of capital gains tax (CGT) is also being extended. From April 2019 non-UK residents will be subject to CGT on transfers of all UK real estate (both residential and commercial). These rules are an extension of the existing non-UK resident CGT rules in relation to disposals of UK residential property which were introduced in 2015.

Generally, only gains accruing from 6 April 2019 will be caught by the new charge, and there are exemptions for overseas pension funds and qualifying institutional investors.

The legislation effectively closes a gaping loophole left by Chancellor George Osborne, when in 2015 he announced the introduction of CGT on residential transactions as part of his ‘crackdown’ on non-doms, but left commercial property untouched. Estimates suggest it could net the Treasury £5bn to £8bn a year. 

On the new SDLT surcharge plan, Theresa May said it “cannot be right that it is as easy for individuals who don’t live in the UK and don’t pay taxes here, as well as foreign based companies, to buy homes as (it is for) hard-working (UK) residents.”

In a survey of its members last year, the Association of Accounting Technicians (AAT) found 78% approval for a surcharge for overseas investors. The AAT pointed out that other EU nations such as Poland, Denmark and Hungary already impose restrictions on overseas property investors, while Iceland, Australia, New Zealand and Singapore prevent, restrict or tax overseas property investment.

As recently as December 2014 the top rate of stamp duty was 7%. It then jumped to 12%, and to 15% in April 2016, with the introduction of a 3% surcharge on second homes. Stamp duty on a £2m property has now almost doubled from £140,000 four years ago, to £274,000, ahead of any new surcharge. Transactions in London have fallen by 26% in that time.

The Chancellor is expected to confirm details of the plans in his Budget on October 29.

Find out more about tax residence

Published: 18 October 2018

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October 2018

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