1st April Stamp Duty Land Tax changes – no laughing matter

With all the publicity around the ‘stamp duty holiday’ extension and the debate around whether the tapered rates will only create a new cliff edge in Autumn, it might be possible to lose sight of another significant SDLT change coming into effect, as Joanna King, Product Manager at tmgroup explains.

From 1st April 2021, a new surcharge will apply to non-UK residents who purchase residential property in England and Northern Ireland. The measure was initially announced in the 2018 Budget and the Government was consulting on it between February and May 2019. The change will see an introduction of yet another layer of complexity on top of the rates applicable in purchases of residential properties.

How will the surcharge work? Where the purchaser will be treated as non-UK resident for SDLT purposes, the transaction will be subject to an additional 2% surcharge in each applicable band. Fortunately, the higher nil rate thresholds recently announced, as well as the First Time Buyer relief will also benefit non-UK resident buyers. Example rates tables are shared below.

Please note, all these changes will be applied to tmgroup’s Post-Completion service and SDLT calculator as and when they become applicable.

For transactions completing by 30th June 2021:

Chargeable consideration Standard Residential rates Standard Residential rates with non-UK resident surcharge Additional dwelling rates with non-UK resident surcharge
£0 – £500,000 0% 2% 5%
£500,001 – £925,000 5% 7% 10%
£925,001 – £1,500,000 10% 12% 15%
£1,500,001+ 12% 14% 17%

For transactions completing on or after 1st October 2021: 

Chargeable consideration Standard Residential rates Standard Residential rates with non-UK resident surcharge Additional dwelling rates with non-UK resident surcharge
£0 – £125,000 0% 2% 5%
£125,001 – £250,000 2% 4% 7%
£250,001 – £925,000 5% 7% 10%
£925,001 – £1,500,000 10% 12% 15%
£1,500,001+ 12% 14% 17%

For first time buyers, in transactions completing on or after 1 July 2021:

From July until the end of September 2021, the nil rate band for the standard residential rates will be lowered to £250,000, however it is important to note that buyers, who have never owned an interest in a residential property before, will enjoy the higher nil rate threshold of £300,000.

First Time Buyer Relief can be claimed in transactions where the property’s purchase price does not exceed £500,000 and the purchaser intends to occupy the property as their main residence. The relief should be claimed on the SDLT return by using the relief code 32.

Chargeable consideration First Time Buyer rates First Time Buyer rates with non-UK resident surcharge
£0 – £300,000 0% 2%
£300,001 – £500,000 5% 7%

On a grant of a residential lease, the surcharge will also apply to the relevant SDLT rates charged on the Net Present Value of the rent.

Individual purchasers will be treated as non-UK resident for SDLT if they have not been in the UK for at least 183 days in any continuous period of 365 days, falling within the two-year window beginning 364 days before the purchase and ending 365 days after the effective date of the transaction. The day count will include any day when the individual is in the UK at midnight.

Specific emphasis is given here on the UK residence criteria for SDLT purposes. The residence test applicable will differ from the normal UK Statutory Residence Test, which would be used for income or capital gains tax purposes.

For joint purchasers, if any one client is non-UK resident for SDLT, the surcharge will apply to the whole purchase price, unless the transaction will be exempt from the surcharge, for example where:

  • the purchaser is buying jointly with their UK-resident spouse or civil partner, and the couple is living together,
  • Crown Employment Relief can be claimed.

Special rules will apply to trusts, partnerships and companies.

For companies, the entity will be deemed non-UK resident for SDLT if:

  • the company is not UK resident for UK corporation tax purposes; or
  • it accounts for UK corporation tax but is a close company controlled by non-UK residents.

Broadly speaking, a close company is a company controlled by five or fewer participators or by participators who are also directors. The term is fully defined in Chapter 2 of Part 10 of the Corporation Tax Act 2010.

Law firms should be reviewing their policies, client questionnaires and SDLT advice given to clients in order to effectively implement UK residence assessments in all new purchase instructions. It will also be essential to carefully review matters already in progress and which may be completing after 31st March 2021, should the surcharge apply to any such transactions.

Firms accredited under the Law Society’s Conveyancing Quality Scheme, in compliance with the Core Practice Management Standards, will need to keep a full audit trail of the SDLT advice given to the clients. It will also be prudent to record all information collected for the purpose of the residence test, in addition to the calculation and verification of the land tax duty amount payable. In complex matters lawyers may wish to advise their clients to seek specialist tax advice to establish their SDLT residence status correctly.

Land tax return

The introduction of the surcharge will also result in changes to the Stamp Duty Land Tax return form (SDLT1). The following three questions are being introduced:

  • Are any of the purchasers non-UK resident?
  • Are any of the purchasers a UK-resident close company controlled directly or indirectly by non-UK residents?
  • Are you claiming Crown Employment Relief?

With the Stamp Duty Land Tax tool from tmgroup completion of the SDLT return is simple and efficient. With an easy to follow responsive workflow and with key data already pre-populated, the practitioner will only need to complete relevant fields tailored to the transaction. There is no need to navigate the complexities of all the 72 questions on the SDLT1 form and additional fields on SDLT2, SDLT3 or SDLT4, as may be applicable. The platform also makes it easy for the homebuyer client to review and approve the information that will be submitted on their behalf to HMRC with our easy to follow format of the draft land tax return data document.

In addition, if the transaction involves multiple titles, there is no need for the conveyancer to contact HMRC to request separate SDLT5 certificates. Equally, there is no need to enclose additional SDLT forms to HM Land Registry with the registration application. tmgroup makes it easy for the practitioner to complete their work with enhanced HMRC compliant SDLT5 certificates, which will include all the required information on one document.

And to make it even easier for the users, tm’s platform will automatically attach the transaction’s SDLT5 certificate to the registration application, ready to be submitted to the Land Registry without the need to leave the platform.

If you have any questions, or would like to find out more about tmgroup’s Post-Completion service, please get in touch, or give Martin Manning, Head of Account Management at tmgroup, a call on 07747 216424

This article was submitted to be published by tmgroup as part of their advertising agreement with Today’s Conveyancer. The views expressed in this article are those of the submitter and not those of Today’s Conveyancer.

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