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Stamp Duty Surcharge Increases Property Tax Bill for Non-UK Buyers

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From 1 April 2021, people buying residential property in England and Northern Ireland who are not resident in the UK will be required to pay a Stamp Duty Land Tax surcharge.

Here we outline how this surcharge will work and how it may affect you if you want to buy property from outside the UK.

What is Stamp Duty?

Stamp Duty Land Tax is a tax that sometimes falls due when you buy property in England or Northern Ireland. You may have to pay if:

  • You buy a freehold property
  • You buy a new or existing leasehold
  • You buy a shared ownership property
  • You are transferred land and property in exchange for payment, for example, if you take on a mortgage or purchase a share in a house

There are different thresholds where Stamp Duty starts to apply which depend on the value of the property and the type of buyer you are. Until 1 July 2021, many people buying a property to live in as their main primary residence can get a 100% tax break – referred to as a Stamp Duty holiday – on properties up to £500,000.

In Wales and Scotland, there are also property tax schemes called Land Transaction Tax and Land and Buildings Transaction Tax respectively.

What is the Stamp Duty surcharge?

The Stamp Duty surcharge is a higher rate of Stamp Duty that some buyers must pay when purchasing property in England and Northern Ireland.

For example, people buying homes in addition to their main residence, such as buy-to-let property and holiday homes, must pay 3% above the standard Stamp Duty rates.

People who must pay a surcharge can also benefit from the Stamp Duty holiday, although their tax break will not be 100%. For example, for someone buying a second home worth up to £500,000 before 1 July, the rate of Stamp Duty would be 3% (3% over 0).

New non-UK resident Stamp Duty surcharge

From 1 April 2021, non-UK residents must pay a Stamp Duty surcharge of 2% higher than UK residents in relation to residential purchases of both freehold and leasehold property. Stamp Duty payable on rents on the grant of new leases has also increased.

Depending on the circumstances, some tax relief may be available and even cases where the surcharge does not apply.

What type of property does the Stamp Duty surcharge apply to?

The surcharge apples if you buy a ‘major interest in freehold residential property for £40,000 or more’.

If you are buying a leasehold property, the surcharge will apply if:

  • The lease premium is at least £40,000, or the rent is at least £1,000.
  • The lease has at least seven years left to run.

If you are only buying gardens and structures (such as a detached garage) but not the residential property itself, the surcharge will not apply.

Who does the Stamp Duty surcharge affect?

The surcharge will apply to all ‘non-resident transactions’ even if you want to live in the property. It will apply whether you already own residential property or not.

Am I a non-UK resident?

Individual buyers will be a non-UK resident in relation to the transaction if they are not present in the UK for at least 183 days during the 12 months before the purchase.

The ‘effective date of the transaction’ is used to establish someone’s residence status – usually this is the completion date of the transaction. British citizenship, nationality, UK visa policies or other residency tests are not relevant.

If you are a UK resident but you are buying property with a non-UK resident to whom you are not married or in a civil partnership, the surcharge will also apply.

Companies will be non-UK residents if they are not UK resident for Corporate Tax purposes at the effective date of the transaction. UK companies may also be non-UK residents if they are under direct or indirect control of a non-UK resident.

Non-UK residents buying additional properties

The non-UK resident Stamp Duty surcharge applies on top of all other residential rates of Stamp Duty. This includes the zero rates enjoyed by first time buyers and the surcharge which applies to additional property purchases.

For example, if a non-UK resident already owns a property in the UK and they purchase another property, they must pay the 3% surcharge for additional properties and the 2% non-UK resident surcharge on top of that.

Is there any tax relief available?

Non-UK residents may be able to claim tax relief in certain circumstances, such as:

  • Multiple Dwellings Relief – for purchasers buying more than one dwelling or a number of linked transactions.
  • Crown Employment Relief – which applies to employees under the Crown, such as civil servants, diplomats and members of the armed forces.

Does the Stamp Duty surcharge apply in Wales?

No. In Wales, that tax that affects property purchases is called Land Transaction Tax. This is different to Stamp Duty so will not be affected by the new surcharge rules.

Need advice about buying a home in England or Wales from outside the UK?

At Bird & Co, we are a specialist firm of Law Society accredited conveyancing solicitors who help people buy and sell their homes. Our experience includes supporting people who are buying from outside the UK.

Get a conveyancing quote online to see how much your transaction is likely to cost, then a member of our Conveyancing team will be in touch shortly.