Budget 2021: Non-resident surcharge for residential purchases from April 2021

Budget 2021: Non-resident surcharge for residential purchases from April 2021

Caroline Fleet, Partner, Corporate Tax
Budget 2021: Non-resident surcharge for residential purchases from April 2021

The government has confirmed that it will press ahead with legislation to apply a 2% surcharge in respect of purchases of residential property by ‘non-residents’ from April 2021, even though it has extended the main Stamp Duty Land Tax (SDLT) holiday for residential property. This surcharge will apply on all residential property acquisition by non-residents of over £40,000, which complete after 31 March 2021. The surcharge will however not apply to mixed use or commercial rate acquisitions (e.g. where there are six or more dwellings in one transaction). There are also a few transitional rules in respect of contracts exchanged prior to 11 March 2020, such that the surcharge should not apply but this relies on no variations being made to the underlying contracts.  

Unfortunately, the definition of ‘non-resident’ for SDLT is another new tax definition, which is complex and will require a multitude of questions by tax advisors and the conveyancing lawyers alike. Where a purchase is being made jointly, it will also be necessary to examine each of the buyer’s position and assess if they would be treated as non-resident and where one purchaser would be treated as non-resident then the surcharge will be applied to the whole transaction, probably with limited ability to claim a refund.  

Individuals purchasing residential property

For individuals purchasing residential property, it will be necessary to assess whether they have been in the UK for at least 183 nights in the previous 12 months to the purchase of the property. If they have spent less than the required time in the UK then the 2% surcharge will apply. In the event that at any point in the next 12 months period after the acquisition, there is a 12 month continuous period in which the individual will have spent more than 183 nights in the UK, they will be able to claim a refund. 

There are a few notable exemptions from this rule being Crown employees and also spouses or civil partners of UK residents and Crown employees.  

Companies purchasing residential property

For companies, the position is more complicated, the starting position will be that the tax residency will be determined by normal company’s tax residency test, such as managed and controlled, and residence determined under a double tax treaty. Where the company is non-resident under this test, the surcharge will apply.  

Where the company would be UK resident under this first test, it is then necessary to determine whether it is a ‘close’ company and is controlled by non-residents. This additional test will mean that more companies will be pulled into being treated as non-resident for SDLT purposes. Based on the current draft legislation, this is particularly draconian where there is a family connection between shareholders and one family member (even if they only own a minority share) can cause the company to be treated as non-resident. Hopefully some of these anomalies will be rectified in the updated tax legislation and guidance that HMRC is due to publish by 8 March 2021.  

For those international investors and individuals caught by this surcharge, there will continue to be a rush to complete before 31 March 2021. Going forward all buyers can expect to have far more questions raised in order to determine the appropriate rate of SDLT. This surcharge is adding even more complexity into an already complex tax with multiple rates. 

Budget 2021

What do the announcements mean for you and your organisation?


This surcharge is no surprise, although at the time of the election manifesto a 3% rate was proposed, so the 1% reduction will be welcomed.

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Caroline Fleet
Caroline Fleet
Head of Real Estate