How will a new stamp duty land tax surcharge affect non-UK residents?

The 2% surcharge will apply in addition to the existing 3% surcharge for purchases of dwellings by companies, so the total surcharge for overseas companies will be 5%.

The good news is that both surcharges do not apply where the purchased property is mixed-use, or more than five dwellings are purchased in a single transaction. At first glance, these two ‘flexibilities’ take away much of the pain. Where they apply, SDLT is charged at the non-residential rates. The problem relates to forward-purchases.

It is common for private-rented sector (PRS) investors to forward-purchase land; it saves paying SDLT on the price paid for the remaining construction works and entitles the buyer to claim SDLT multiple-dwellings relief.

For example, suppose land that is in the process of being developed into 250 PRS units is bought for £50m. From April, a UK REIT would pay £1.9m in SDLT, whereas an overseas investor would pay £615,000 (or 33%) more SDLT.

In this example, by claiming multiple-dwellings relief – a relief that was expressly designed to help PRS investors – it means that overseas investors would pay more than they would by not claiming the relief.

Due to a fear that non-resident individuals would buy dwellings using UK companies to escape the 2% surcharge, the rules (as drafted) look through UK companies and impose the surcharge if they are controlled by a non-resident. (Incidentally, overseas companies are not looked through and would suffer the surcharge even if they were controlled by a UK resident.)

Will we see UK-resident investors exploiting their competitive tax advantage in 2021?

Sean Randall is a CTA (fellow), partner at Blick Rothenberg, editor and author of Sergeant & Sims on Stamp Taxes, and chair of the Stamp Taxes Practitioners Group