Budget 2020 and SDLT– a heads up to non-UK residents
We all held our breath while listening to the Chancellor’s recent budget for the new Government. Clients and advisers alike heaved a sigh of relief when Rishi Sunak announced that the long-anticipated Stamp Duty Land Tax (SDLT) changes for non-UK residents will only come into force in April 2021, offering non-UK residents a window of time to plan for the change in the rules.
What will change?
A new 2% SDLT surcharge will apply to non-UK residents purchasing residential property in England and Northern Ireland as of 1 April 2021. Both standard and higher residential rates (which apply to purchases of second homes and investment properties) will see an increase of 2%, leading to a top slice rate of 17% for high value property purchases.
More detailed rules are expected to be released soon, and should shed light on critical aspects of this matter. This includes the meaning of non-UK resident and residential property subject to the surcharge. It would be interesting to see whether the definition of non-UK resident is aligned with that within the Statutory Residency Test.
Transitional rules are expected to protect some purchasers against the surcharge where a contract was exchanged before 11 March 2020 but is due to complete after 1 April 2021. These protective measures are typically targeted towards off plan purchases where completion is scheduled at a date later than 1 April 2021.
Of course, those who have not started the process of purchasing a residential property or have exchanged after 11 March 2020, are advised to complete their purchase before 1 April 2021. Otherwise, their transaction will fall within the net of the 2% surcharge.
Comparison – Example
A non-UK resident, who already owns property elsewhere, purchasing a freehold property for £2,000,000 and falling within the standard rates will pay SDLT of:
- £213,750 where the purchase is completed before 1 April 2021; or
- £253,750 where the purchase is exchanged after 11 March 2020 and completed after 1 April 2021.
The additional SDLT is therefore £40,000 making this a substantial top-up.
What does this mean to you?
If you are a non-UK resident who is considering purchasing a property in England or Northern Ireland, you may want to accelerate your decision making process.
We encourage you to kick-start your property hunting stage with a view to completing the purchase well before the cut-off date (1 April 2021). Otherwise, you will need to budget significantly more funds to cover the higher SDLT rates coming into force on 1 April 2021.
How can we help?
Where you own UK situated property you need to do life event planning and documentation for UK law, which is where our expertise comes into play.
We regularly advise clients on the best ownership structuring option for them from both asset protection and tax planning perspectives. We are often engaged to provide advice in the form of a stand-alone exercise or as part of a wider estate planning mandate. Either way, it is fundamental that you seek legal advice well ahead of purchasing any UK property.
Please contact any member of the Private wealth team should you wish to discuss this.