Over recent years, individuals with international personal tax affairs have been subject to a raft of tax changes. The Chancellor’s first Budget brings welcome respite, with the only significant change for such individuals being the expected introduction of a Stamp Duty Land Tax (SDLT) surcharge for non-residents.
HMRC consulted on the proposed SDLT surcharge in early 2019. It has now been confirmed that a surcharge of 2% will apply where non-UK residents purchase residential property in England and Northern Ireland. This is an increase to the 1% charge originally proposed. The surcharge will apply to purchases completed after 1 April 2021. However, transitional rules may apply where contracts were exchanged before 11 March 2020 but are not completed until after 1 April 2021.
Non-resident companies and trusts are expected to be subject to the surcharge, which may affect decisions on how best to structure future acquisitions. Full details are yet to be published but legislation is due to be included in Finance Bill 2020-21.
There was expectation in some quarters that the Government might have introduced wholesale reforms to inheritance tax, although no amendments have been announced for the time being. This may represent an opportunity for those individuals who had put their succession plans on hold as a result of uncertainty ahead of the Budget to move forward.
In summary, UK resident non-domiciled individuals can continue to focus on adapting to the various tax changes that became effective as of 6 April 2017 and 6 April 2018, impacting themselves and their offshore structures. It remains important to review domicile status regularly, particularly where trust protections and capital gains tax rebasing reliefs are being relied upon. Individuals should also bear in mind that even though they may now be deemed domiciled, they could still be subject to additional tax charges on remitting income and gains. Maintaining offshore bank accounts efficiently, particularly where clients have been able to segregate clean capital amounts, remains a priority.
Non-UK resident stamp duty land tax surcharge
The Government has announced a 2% stamp duty land tax surcharge on residential property purchases in England and Northern Ireland by non-UK residents.
The Government has confirmed that the proposed stamp duty land tax (SDLT) surcharge for purchases of residential property in England and Wales by non-UK residents will be introduced with effect from 1 April 2021.
The surcharge is expected to apply to purchases by individuals and ‘non-natural persons’, such as companies, trusts and partnerships, and will apply on top of existing SDLT rates.
Full details of the surcharge are yet to be published, but legislation is due to be included in Finance Bill 2020-21. It will only cover transactions involving English and Northern Irish residential property, as Scotland and Wales have separate land transaction taxes.
There will also be transitional rules where contracts are exchanged before 11 March 2020 but complete or are substantially performed after 1 April 2021.
The introduction of the SDLT surcharge was expected as it was first proposed in Budget 2018. There was a consultation on the initial proposals in 2019. The policy aim is to improve affordability of residential property for UK resident purchasers.
One eye-catching element of the announcement, however, was that the surcharge would be set at 2% rather than the 1% previously proposed.
Full details of the proposals are not yet clear, but there were a number of areas raised in the 2019 consultation that will require confirmation, such as the definition of ‘non-UK resident’. For example, the consultation suggested a specific definition of residence for the purposes of the surcharge, which could lead to purchasers being caught by the surcharge even if they are treated as UK resident for other tax purposes. The Government has announced it will shortly release a summary of the responses to the consultation.
It remains to be seen whether the surcharge will have the desired effect on residential property demand, but the Government has stated that funds raised from it will be used to help address rough-sleeping, which is to be welcomed, even if the additional complexity brought in by the surcharge could cause issues for purchasers and advisers.
When will it apply?
From 1 April 2021
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.