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In the 2018 Budget, the government announced a proposal to charge an extra 1% SDLT on non-UK residents buying UK residential property. The proposed definition of a non-UK resident individual for this purpose is a person who has spent less than 183 midnights in the UK in the 12 months ending on the date of the transaction, according to the consultation document issued on 11th February 2019. (There is no date for the provision coming into effect, the consultation ends on 6th May).

Then a person who spends more than 183 midnights in the UK in the 12 months following the date of the transaction can apply for a refund. Presumably this is to allow someone who moves into the house they’ve bought in the UK to be taxed as a resident rather than a foreigner.

If two individuals buy a house as joint owners, and one of them is not UK resident at the time under the SDLT test, then the extra 1% applies to the whole of the consideration.

The 1% charge is in addition to the SDLT due in relation to other factors. So, for example, an individual who is non-UK resident and already has a residence would pay the 1% in addition to the 3% additional SDLT on second home owners.

The proposed test for an individual needs to be one which can be applied on a particular date, and it is therefore not the same as the Statutory Residence Test for income tax and capital gains tax, which applies for a tax year. This means in particular that it is perfectly possible for a person who is UK tax resident in 2019/20 to be treated as a non-UK resident when they buy a property on 5th April 2020.

The consultation document notes that these rules are intended to be “as simple as possible for taxpayers and conveyancing solicitors to apply, in recognition of the fact that most people buying a home will not engage a professional adviser.” What this means is that the rules for “non-natural persons” are even more complicated.

Where an offshore trust acquires a UK residential property, the rules which use the residence of the trustees and settlor in order to determine the residence status of the trust will apply, however where the test considers whether an individual trustee is UK resident or not, the test will be the same as for a non-UK resident individual for SDLT purposes. That is, the residence of the trustee is considered by reference to his midnights spent in the UK in the twelve months prior to the transaction.

Where a company acquires residential property, it already pays SDLT at 15% (subject to exemptions), however if the company is treated as non-UK resident for SDLT purposes, this will increase the rate to 16%. The normal test of company residence is applied to determine whether the company is UK resident or not at the time of the transaction. However, there is a further category of companies which will pay the additional 1%. The rate applies to a company which is itself UK resident, but which is a close company controlled by one or more non-UK resident individuals. This is said to be to ensure that non-UK resident individuals can’t avoid the extra 1% by acquiring through a UK company, even though that could itself result in a 15% charge.

Although SDLT is payable only on property in England and Northern Ireland, the test applies to nights in the whole of the UK; thus a Scot who buys an English property should not be taxed as a foreigner.