The new non-resident surcharge

Non-resident surcharge

Since 1 April 2021, a 2% non-resident surcharge applies to the purchase of residential property in England and Northern Ireland that cost more than £40,000, where at least one of the purchasers is non-UK resident. The difficulty for conveyancers is in determining the residency status of buyers. The charge applies to both individuals and companies, but we will focus on the former here.

There is a welcome exemption to the surcharge for spouses as long as one is UK-resident. The 2% surcharge applies on top of all existing residential rates of SDLT, including the 0% rates and the rates for first time buyers.

Residence test - individuals

Part of the complication arises because “non-resident” for tax purposes usually means someone that meets that definition under the statutory residence test (SRT). However, for the purposes of the surcharge the SRT is not relevant. Instead, a new day-counting test is introduced.

An individual will be non-resident for SDLT purposes if they are not present in the UK for at least 183 days during the twelve months prior to the date of completion.

Even though the surcharge only applies to purchases in England and Northern Ireland, any days spent in any of the UK countries will count towards the days test. An individual will be present in the UK for a particular day if there are in the UK at midnight.

Refund possible

Because of the way the test works, it is possible that some buyers will be non-resident for SDLT purposes for a purchase made in a tax year they are UK-resident under the SRT. There is further relief here to avoid unfairness. If someone is caught by the non-resident surcharge, they will be able to obtain a refund if, after the purchase, they are present in the UK for at least 183 days during any continuous 365-day period which starts one year before the purchase and ends one year after the purchase.

Example. An individual came to live in the UK on 1 January 2021 and purchased their main residence on 25 March, therefore they were only present in the UK for 83 days at the time of purchase and so paid the surcharge. However, after 3 July 2021 they had been present in the UK for 183 days during a continuous 365-day period and so will be eligible for a refund.

Only individuals are eligible for a refund, which must be claimed by amending the original SDLT return within two years of the purchase. This represents an extension to the normal twelve-month amendment window.