09 November 2020

Whilst the Autumn Budget may have been cancelled, one tax change that will go ahead next Spring is the introduction of a non-UK resident stamp duty land tax ('SDLT') surcharge. Draft legislation and an explanatory note has already been published, but we are still waiting for detailed guidance from HMRC.

We take a more detailed look at the new rules below, but in brief:

  • The new surcharge will apply to non-UK residents who purchase residential property in England and Northern Ireland from 1 April 2021 onwards.
  • The surcharge has currently been set at two per cent and will apply across all rates of SDLT. As a result, the top rate of SDLT will increase to 17 per cent in certain circumstances.
  • A specific new test for residence has been drafted for the purposes of determining whether the surcharge applies. The statutory residence test (the usual test for determining an individual’s UK residence status) will not apply. We consider this in more detail below.
  • The surcharge will apply to purchases of freehold interests (except freeholds subject to leases with more than 21 years to run) and leasehold interests (that have at least 21 years left to run and which are not themselves subject to a long-term lease). The surcharge will also increase the SDLT payable on rent payments on the grant of a new lease.

The current SDLT 'holiday', which means that (in most cases) no SDLT is payable on the first £500,000 of consideration on residential property purchases, is scheduled to end in April next year. This, coupled with the non-resident SDLT surcharge, means that it is important that if an individual or entity who might be considered non-UK resident is considering a purchase of UK residential real estate in the next few months, it would be advisable to aim for completion prior to 1 April 2021, if possible.

The non-residence rules in relation to the surcharge

Looking in a bit more detail at the draft legislation, in order for the non-resident surcharge to apply, the purchaser must be, or (where there is more than one) the purchasers must include, a person who is non-resident in relation to the transaction.

Individual Non-Residence Rules

The key point to note in relation to individual non-residence is that the draft surcharge legislation contains a new test for residence which will apply only for the purposes of determining whether the surcharge applies. The Statutory Residence Test will not apply in relation to the SDLT surcharge.

The SDLT surcharge test provides that an individual is UK resident (and so the surcharge will not apply) if that individual is present in the UK on at least 183 days during any continuous period that:

  • Begins with the day 364 days before the effective date of the chargeable transaction; and
  • Ends with the day 365 days after the effective date of the chargeable transaction.

This therefore provides a two year window for the 183 day test to apply.

The effective date in relation to most property transactions is the date of completion.

Whilst the test appears straightforward in practice, there are concerns that having a separate test to the existing statutory residence rules adds complexity. The Society of Trust and Estate Practitioners (STEP) has highlighted this as an area of concern in its response to the draft legislation.

A further point to note is that married couples and civil partners, who own property jointly, will both be treated as resident in the UK where they are living together and one of the couple is UK resident.

Special Cases for Individual Non-Residence Rules

 The 183 day rule is slightly different where the purchaser is, or the purchasers include:

  1. A company or a person acting as a trustee of a unit trust scheme;
  2. An individual who is treated as a purchaser by entering into the transaction as a partner of a partnership; and
  3. An individual acting as trustee of a settlement where no beneficiary is entitled to occupy the dwelling or dwellings for life under the terms of the settlement or to income earned in respect of those dwellings.

In these circumstances an individual will be UK resident if they were present in the UK on at least 183 days during the 364 days before the effective date of the chargeable transaction (i.e. in these scenarios the test looks solely at the position in the year prior to the transaction and does not consider the position after the transaction).

Company Residence

A non-resident company will be liable for the two per cent surcharge if on the effective date of the chargeable transfer:

  • The company is not UK resident for UK corporation tax purposes (i.e. it is not incorporated in the UK nor managed and controlled in the UK); or
  • The company is subject to UK corporation tax but it is a close company which is controlled by one or more persons (individuals or entities) who are not UK resident (using the SDLT tests for residency) and it is not an excluded company (OEICs, REITs and a company that is a member of a group UK REIT).

A simple scenario where the surcharge would apply would be a residential property purchase by a UK company which is wholly owned by a non-UK resident individual (with residency determined by reference to the rules discussed above). The surcharge could also apply to the scenario of a UK company wholly owned by a non-UK resident company.

However, the second test is potentially very broad in its application, as a result of the close company rules and the rules concerning the attribution of interests of shareholders to other shareholders.

In general terms, a close company is one which is under the control of five or fewer participators or participators who are directors. 

In certain situations, rights of one individual can be attributed to another when considering whether an individual has control of a company. For example, rights of a person’s parents, children and siblings will be attributed to that person. This could cause difficulties in scenarios where one minority shareholder is non-UK resident but the rights of all other UK resident shareholders are attributed to them. The attribution rules would mean that the company would be treated as under the control of the non-UK resident shareholder and so the company would be subject to the SDLT surcharge on a purchase of UK residential property.

The draft SDLT surcharge legislation contains an exclusion so that rights of spouses and civil partners who are living together are not attributed to each other in a situation where one is UK resident and the other not, but this exclusion does not extend to other family members.


Four siblings each own 25 per cent of the issued shares of a UK resident company. One of the siblings decides to leave the UK and moves to Spain and is non-UK resident under the test set out in the draft surcharge legislation. The attribution rules in the close company legislation mean that the interests of the three UK resident siblings could be attributed to the non-UK resident sibling, resulting in the company being treated as controlled by a non-UK resident individual. If the company then purchases a UK residential property, the surcharge would apply.

The breadth of the attribution rules is an area of concern that has been highlighted to HMRC. We will have to wait to see whether any amendments are made to the legislation prior to it coming into force. However, if the legislation is enacted as drafted, it is easy to envisage many corporate purchasers being caught out by the application of the surcharge.

Bare Trusts

Where the purchaser, or the purchasers include someone who is acting as a trustee of a bare trust and that individual acquires a new lease, then it is the beneficiary’s residence position that is relevant.

Settlements where the beneficiary is entitled to occupy or to income

Where the purchaser, or the purchasers, include someone who is acting as trustee, and under the terms of the settlement a beneficiary is entitled to occupy the dwelling or dwellings for life or to earned income, the beneficiary is the individual to which the non-residence test must be applied.

Next Steps

HMRC will publish guidance for taxpayers and agents in advance of these changes coming into force from 1 April 2021. This guidance will set out the practicalities relating to the new residence test in more detail and provide an updated SDLT Return form. Transitional arrangements will also be released in due course.

Given the concerns that have been raised about the potential breadth of the close company control test, it is possible that amendments could be made to the draft legislation before it comes into force.

However, the safest route, as mentioned above, where non-UK residents are currently in the process of purchasing UK residential real estate, is to proceed as quickly as possible to try to ensure that the transaction completes prior to 1 April 2021.

Burges Salmon's Tax specialists are available to discuss any legal issues arising from these proposed changes.

This article was written by Emma Heelis-Adams and Robert Jeffrey.

Key contact

Emma Heelis-Adams

Emma Heelis-Adams Partner

  • Private Client Services
  • International Tax
  • HNW and UHNW Individuals

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