The impact of the COVID pandemic on international travel has inevitably led to fewer residential purchases being completed where the newly introduced 2% non-resident SDLT surcharge (the "NR Surcharge") applies.

Nevertheless, we are now starting to see completions taking place where the NR Surcharge has been payable and as it's expected that autumn will see an influx of international buyers to the market, many of them will be seeking guidance on how the NR surcharge affects them.

Advice on the application of the NR Surcharge, which captures relevant purchases completing after 1^st April 2021, should also consider whether the surcharge element can potentially be reclaimed in the future.

By way of reminder, the residence test for SDLT purposes is different from the Statutory Residence Test and does not take account of the tax year. The NR Surcharge rules introduce a wholly separate test and the contrast between the two can mean that a buyer may be UK resident under the Statutory Residence test but non-resident for SDLT purposes.

How does the test work?

For an individual buying residential property in their personal name (including through a nominee company or a beneficiary under a trust who is entitled to the oncome from the property) the test is a fairly straightforward one. The key is whether the individual is present in the UK for 183 days during a continuous 365 day period which in turn falls within a two year window centering around the completion date of the purchase (one year before and one year after it). Effectively the buyer needs to find a single continuous year within that two year window during which they spent at least 183 days in the UK.

Put simply, the test looks both backwards and forwards from the completion date. If looking backwards does not find the 183 days then the NR Surcharge will need to be paid at completion but if the 183 days presence in the UK is achieved in the future, within one year from completion, then a refund can be applied for.

How to claim repayment

HMRC has published some guidance on when and how non-UK resident buyers can apply for a repayment which can be summarised as follows:

• The refund is claimed by applying to HMRC to amend the land transaction return to take account of the fact that the transaction is not liable to the ND Surcharge ultimately.
• The claim for repayment must be made within two years of the effective date of the transaction (usually the completion date).

This will allow individuals who are moving to the UK to reclaim the extra 2% SDLT even though they may be non‑UK resident when the purchase takes place.

If the purchase involves than one buyer, refunds are only possible if all buyers are individuals that satisfy the residence rule, although the continuous 365 day period can be different for each buyer. 

Record keeping and evidence of presence in the UK is important.  HMRC could ask for credit card and bank statements to indicate the place of the purchaser's day by day expenditure and may check mobile phone usage and bills.

Takeaways

• Advisors should flag the potential for individuals to claim a refund of the 2% NR surcharge in certain circumstances, if they become UK resident for SDLT purposes within the relevant period post completion.
• Good record keeping will assist buyers in the event that evidence of their presence in the UK is requested by HMRC when applying for a refund of the NR surcharge element.