Stamp duty land tax: a further surcharge in the pipeline for overseas buyers

It can be difficult not to look back nostalgically to pre-1997 when stamp duty was charged at a modest 1% on any purchase price over £60,000.

The following decade saw the introduction of some relatively gentle changes and then everything started to become much more complicated, and much more expensive for buyers.

We now have an SDLT regime that is a patchwork of different rates and surcharges, introduced over the last few years in piecemeal fashion. It's a complex regime that can prove challenging for tax lawyers to navigate, not just property lawyers.

It's in this context that the government's latest consultation, outlining another proposed change to the SDLT matrix, closed early last month; it proposes a further 1% surcharge for non-residents acquiring residential property in England and Northern Ireland.

As the outcome of the consultation is awaited, property lawyers continue to accumulate CPD points on day long training courses, grappling with the minefield that the application of these rules has become.

The key proposals

• The surcharge will apply to all residential acquisitions by non-resident individuals and corporates, partnerships and trusts. It will be payable in addition to any other SDLT surcharge calculated under the existing rules so, for example, a non-residential company paying the 15% rate under the rules for companies acquiring property (other than for development or rental purposes) will also pay the new surcharge, resulting in SDLT being charged at 16%.
• UK resident companies will also be within the scope of the surcharge if they are controlled by one or more non-UK resident persons.
• Where there is more than one buyer of a property (including where the buyer is a partnership) the surcharge will apply to the whole of the price if any one of the buyers is non-resident. This will work in a similar way to the existing 3% surcharge for "additional properties" which applies if any of the joint purchasers already owns another property.
• Individuals will be treated as non-UK resident for the purposes of the surcharge if they spent fewer than 183 days in the UK during the 12 month period ending with the effective date of the transaction. This is a different test to the one used for other tax purposes, known as the "Statutory Residence Test." The government decided against using the Statutory Residence Test on the basis it was considered to be poorly suited to a transaction based tax such as SDLT for which the concept of "tax year" is not relevant, and would be too difficult to apply.
• It is proposed that if a person has paid the surcharge and spends 183 days or more in the UK following completion of their purchase, they will be entitled to apply for a refund of the surcharge element.
• In a collective enfranchisement, if one or more of the tenants is non-resident the surcharge will apply to the whole.
• Mixed use transactions are treated as non-residential and therefore not within the scope of the surcharge which will apply to residential transactions only. Purchases of six or more separate dwellings are treated as non-residential transactions and therefore are not within the scope of the surcharge.

How have the proposals been received?

Throughout the uncertainty surrounding Brexit, overseas buyers have continued to be active in the prime central London market, capitalising on the weakness of sterling, whereas UK resident buyers have been understandably more hesitant.

Research published by Hamptons International indicates that foreign buyers accounted for 57% of those buying residential property in prime central London in the second half of 2018.

To date, these overseas buyers have reacted philosophically to the introduction of punitive stamp duty land tax rates for overseas buyers so perhaps it's unlikely that a significant number of them will be deterred by a further 1% charge.

Overseas buyers have been particularly important in sustaining the new development market with many international investors, particularly those acquiring off-plan properties, buying property for their children to occupy when they come to the UK to study.

It has been by securing sales on these sorts of new developments that developers have been able to bring new homes to the market for domestic buyers.

It therefore seems odd that the government's view is that this new surcharge will somehow assist UK residents in getting onto the housing ladder and that purchases of property by non-residents are pushing up house prices for those UK residents. Is the government really looking at the bigger picture?

Not surprisingly, the consultation does not ask for views on the appropriateness of introducing a new surcharge at this point in time.

There has already been a climb down of sorts; when Theresa May originally announced ahead of the Conservative Party Conference in September 2018 that she was considering a non-resident surcharge, there was talk of it being up to 3%.

The response to the consultation and resulting legislation will be monitored carefully by the property industry as it braces itself for the addition of a further layer of SDLT legislation.