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Yet further complexity to be added to stamp duty rules for residential property?

HM Treasury has recently published a consultation document in relation to a proposed 1% Stamp Duty Land Tax (SDLT) surcharge for non-UK residents purchasing residential property in England & Northern Ireland.

The stated aim of the surcharge is to help more UK citizens into home ownership, but is this a realistic outcome or will this merely add more complexity to a tax code which is already, to many people’s minds, not fit for purpose?

The substance of the surcharge

The broad outline of the proposed surcharge is that an additional 1% rate of tax is to be applied when computing the SDLT liability on certain acquisitions of residential properties located in England or Northern Ireland by persons who are not (or are treated as not being) resident in the UK for these purposes.

Type of property

The surcharge would apply to acquisitions of residential properties in England and Northern Ireland. As such, an initial question needs to be addressed as to whether a property is a “dwelling” or “suitable for use as a dwelling”. Whilst the answer will be obvious in many instances, in practice there is a great deal of uncertainty in borderline cases (including whether the property constitutes “mixed” property – a hot topic amongst tax practitioners in recent years) due to the vague statutory definition.

Type of purchaser

For the surcharge to apply, the purchaser would need to be “non-resident” specifically for the purposes of these rules (the rules will not borrow the well established concept of residency from other parts of the UK’s tax code).
The test of non-residency will depend on the type of purchaser:

  • An individual will be liable to the 1% surcharge if they have spent fewer than 183 days in the UK in the 12 months ending with the effective date. If the purchaser is acquiring the property at a time when they are moving to the UK, the individual will initially have to pay the 1% surcharge but may claim it back if they spend 183 or more days in the UK in the following 12 months.
  • Broadly, a company will be treated as a non-resident purchaser and liable to pay the extra 1% unless it is both:
        • UK incorporated or has its central management and control exercised in the UK at the time of the transaction; and
        • Either:
          • it is non-“close” (i.e. not under the control of five or fewer participants); or
          • it is a “close” companies which is not under the direct or indirect control of one or more non-UK residents.
  • A partnership would pay the surcharge if any one of its partner is non-UK resident, no matter how small that partner’s interest.
  • A bare trust is normally transparent for SDLT purposes so the surcharge would apply if the beneficiary of the bare trust is non-UK resident. The treatment for other settlements (namely trusts other than bare trusts) would depend on whether the beneficiary is either entitled to live in the property for life or receive rental income arising from the property. If so, and that beneficiary is non-UK resident, the surcharge would apply. If not, the surcharge would apply if the trustee is non-UK resident.
  • For joint purchasers, the surcharge would apply if any one of the purchasers is non-UK resident. So, for instance, if the wife in a married couple was moving to the UK and buying property jointly with her husband whilst her husband remains resident outside the UK, the surcharge would apply. However, helpfully, the surcharge would not apply where the property is purchased solely by the UK resident wife (contrary to the approach adopted in the rules for the existing 3% additional rates of SDLT which effectively treats a married couple as a single person).


  • The SDLT returns are expected to be amended to reflect this additional surcharge. It is also proposed that an SDLT return may be amended at any point up to 24 months after the filing deadline in cases where a purchaser has paid the surcharge and subsequently moved to the UK in order to facilitate refunds of the 1% surcharge in appropriate cases (current legislation prevents a taxpayer amending an SDLT return more than 12 months after the filing deadline).

How much extra complexity is an extra 1% worth?

When first drafted, the SDLT code was a relatively neat set of tax legislation.  Admittedly, the SDLT returns have never lent themselves particularly well to complex transactions, and some provisions have always been trickier to apply than others, but it broadly read as a coherent code, with a single rate of tax applicable to commercial transactions and a single rate applicable to residential transactions.

Then started the piecemeal patches and changes with the introduction of additional rates of tax, leading to such schedules to Finance Act 2003 as 4A, 4ZA and 6ZA. As a consequence, conveyancers now need to ask a myriad of questions of a purchaser in order to be able to calculate the SDLT liability due with the outcome that there are a number of potential rates of SDLT that can apply to a transaction;

  • the commercial rates of SDLT;
  • the 15% higher rate for higher threshold interests purchased by companies;  
  • the higher rates (3% surcharge) for additional dwellings and dwellings purchased by companies;  
  • the lower rates for first-time buyers; and
  • the “normal” rates for residential property.

Consideration then has to be given to whether a relief applies to some or all of the transaction, with further complexity added when applying certain of the reliefs such as multiple dwellings relief. 

The question must arise as to how conveyancers (not being tax experts) are expected to understand and apply these rules. This complexity is often disproportionate to the amount of tax at stake, and unfair outcomes seem to abound (some in favour of the taxpayer, others in favour of HMRC). Anecdotally, it seems clear that conveyancers are struggling with the existing rules. This impacts on the taxpayer who expects and relies on its conveyancer to advise it of the correct SDLT liability, but it is the taxpayer who is primarily liable for the additional tax, interest and penalties in the event that the calculation is incorrect. There is an increasing concern within the property industry that insurers will cease to provide professional indemnity insurance if conveyancers repeatedly make errors in relation to the calculation of SDLT liabilities.  

Now add to this mix the new 1% surcharge for non-UK resident purchasers and the conveyancer will additionally be required to establish the tax residence of the purchaser (which could be a potentially onerous undertaking, particularly where a UK company is owned in whole or in part, directly or indirectly, by a non-resident). All this is the case notwithstanding HMRC’s repeated mantra of keeping matters as “as simple as possible”.

The stated aim of the surcharge is to “help more people into home ownership”. The question is, having read the 32 page consultation document, would this surcharge actually make any difference to the number of overseas purchasers acquiring UK residential properties? Some overseas purchasers are currently prepared to acquire UK residential property and pay SDLT at the flat rate of 15%. If that is the case, surely they’ll equally be prepared to pay at the flat rate of 16% (assuming of course the housing market in the UK remains at all attractive to overseas investors). Even if the surcharge does act as a barrier for overseas purchasers, does this outcome justify the additional complexity for purchasers and their advisers?

There is an increasing belief that HMRC do not understand the difficulties faced by conveyancers and the impact that this complexity has for the taxpayer. Adding yet further complexity whilst also reducing the timeframe for filing SDLT returns to 14 days after a transaction indicates that HMRC is not in touch with the realities of the conveyancing process. 

The consultation closes on 6 May 2019. Representations can be sent to [email protected].


This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.


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