The UK government issued a consultation document on 11 February 2019 in relation to a Stamp Duty Land Tax (SDLT) surcharge on non-UK residents who purchase residential properties in England and Northern Ireland. This surcharge would apply where residential property is purchased by non-UK resident individuals and by some other categories of buyer such as companies, partnerships and trusts in certain situations.

The surcharge be charged on freehold and leasehold purchases of residential property at a rate of 1% in addition to the existing SDLT rates, including the rate applying to the rental element of leasehold property.

Companies

As there is currently no concept of corporate resident in the SDLT legislation a corporate residence test will be introduced to determine non-residence and liability to the surcharge. This would be based on the residence test in the Corporation Tax Act 2009. A company would therefore be considered resident if it is incorporated in the UK or if at the time of acquiring the residential property the central management and control is exercised in the UK.

A separate rule will be introduced to cover a situation where non-UK residents may acquire property using UK resident companies. The rules will ensure that the surcharge applies where non-UK resident individuals use a UK-resident company to purchase a dwelling.

A UK resident company would become liable to the SDLT surcharge if, at the time when acquires the residential property, it is a close company (as defined in the Corporate Tax Act 2010) under the direct or indirect control of one or more non-UK resident persons.

A company would normally be considered a close company if it is under the control of five or fewer participators, or any number of participators who are also directors; or if five or fewer participators (or any number of participators who are also directors) are entitled to receive the greater part of the assets if the company is wound up.

If the company is a close company and control over the company can be exercised by one or more non-UK resident persons, the SDLT surcharge will apply when it purchases UK residential property.

Partnerships

For the purposes of SDLT partnerships are treated as if the partners are joint purchasers of partnership property. This treatment will also be applied to determine whether the SDLT surcharge is to be charged on purchases of UK residential property by partnerships.

Trusts

The consultation document looks at rules that could be applied to determine the application of the SDLT surcharge to trusts. These are based on existing rules to determine the residency status of a settlement trust with modifications to adapt the rules for SDLT.

In the case of a bare trust the SDLT surcharge will apply if the beneficiary (or one of the beneficiaries) is non-UK resident. This rule will apply regardless of the residency status of the bare trustee.

Additional rules are however proposed for the purposes of the SDLT surcharge where a dwelling is acquired by a settlement trust or acquired by a bare trustee on the grant of a lease.

Comments are invited from interested parties by 6 May 2019.