Partner Sean Randall asks 10 questions about the Stamp Duty surcharge for non-UK residents.
The announcement in this week’s Budget to introduce a 2% stamp duty surcharge for purchases of residential property in England and Northern Ireland by non-UK residents was expected. A consultation on draft legislation will start in a few weeks, but until then the announcement begs 10 questions:
- Why set it at 2%? The Government had consulted on a 1% surcharge and in their manifesto they had said it would be 3%. No reasoning was given for the drop in rate.
- Would anyone bet on it staying at 2%? Australia, Singapore, Canada and Israel have similar charges and theirs are many multiples of ours. The prime central London market should be nervous that the rate could increase in the short-term.
- For most non-UK residents, isn’t this a disguised 5% surcharge? Most non-UK residents would be liable to the existing 3% surcharge because they would not be replacing their main residence. That means that the 2% surcharge is really a 5% surcharge for most non-UK residents.
From April 2021, a non-UK resident buying a house or flat worth only £5 million could pay more tax than a UK resident using a company.Sean Randall, Partner
- Will the Government be successful in minimising collateral damage? The target of the surcharge is non-UK resident investors. But under the original proposal a couple would pay the surcharge in full where one uses the purchased property as a main residence but the other lives or works overseas. The Government also announced that housing co-operatives would be given relief from the anti-enveloping rate (and its sibling the annual tax on enveloped dwellings). This comes eight years after those measures were introduced. Will we see changes removing persons from the non-resident surcharge in 2029?
- Who will benefit from the transitional rule? Purchases made by non-UK residents that complete on, or after, April 2021 will not suffer the surcharge if sale contracts were exchanged before 11 March 2020. That type of transitional rule is common for immediate rate increases; but how many people would have exchanged sale contracts before 11 March 2020 with a completion date almost 13 months away?
From April next year, 11 alternative sets of rates would apply and within the 11 sets of rates, there would be 29 separate rates and tax bands.
- Will residential property lawyers cope with an even more complex Stamp Duty code? From April next year, 11 alternative sets of rates would apply and within the 11 sets of rates, there would be 29 separate rates and tax bands.
- The original proposal for the surcharge contained a relief for members of the Armed Forces on overseas postings. So why has the Government refused to give a relief from the existing 3% surcharge for members of the Armed Forces replacing their main residence?
- Will non-resident build-to-rent investors absorb the cost? In many cases, they pay tax at an effective rate of 3% by accessing a relief for bulk purchases. From April next year, there would be no benefit to claiming the relief, as the fall-back would be paying tax at the non-residential rates giving an effective rate of almost 5%. In contrast, many investors in purpose-built student accommodation will probably continue to benefit from a 1% tax rate. Is that result justified by the difference in the two types of assets? Moreover, if the policy rationale is to increase the supply of homes for UK residents, and there is a chronic housing shortage, then surely such build-to-rent investors should be incentivised not penalised?
- Increasing tax rates tends to produce an increase in tax avoidance. Will HM Revenue & Customs (HMRC) use the tools at their disposal to tackle marketed tax avoidance?
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