Lisa Spearman considers the new 2% surcharge on Stamp Duty Land Tax (SDLT) for non residents buying UK property, and its interaction with the statutory residence test applicable to Income Tax and Capital Gains Tax.
From 2008 onwards, it was clear that the UK needed a definitive test of residence to make the system work. It took until 2012 to establish the statutory residence test, coming into effect on 6 April 2013, which while not perfect is significantly better than the previous guess work. It is frustrating then that despite representations on this point, the new surcharge on SDLT for properties purchased by non-residents uses entirely different criteria. From 1 April 2021, purchasers will need to review their position if they have spent any significant amount of time outside the UK in the preceding 12 months regardless of citizenship, usual tax residence or rights of abode.
In essence, the question for SDLT, is whether the purchaser has spent 183 midnights in the UK in a continuous 365-day period within the two years beginning one year before and ending one year after the date of purchase. To express this more clearly, suppose a purchase completes on 30 June 2021, one is looking for 183 days midnights in a 365-day period which begins on 1 July 2020 and ends on 30 June 2022.
If the 183 days fall before the purchase, there is no surcharge payable. In all other cases the surcharge is payable up front and reclaimable once the qualifying residence condition is fulfilled.
The detail of the SDLT rules can be found at https://www.gov.uk/guidance/rates-of-stamp-duty-land-tax-for-non-uk-residents and you should seek specialist SDLT advice if you are affected. The surcharge can apply to trusts and companies as well as individuals and there are particular tests of residence for them.
The point to stress is that there is no interaction with the Statutory Residence Test (SRT) nor UK tax years and I am not aware of any concession to the pandemic travel restrictions – please do let me know if I have missed it!
It is possible to be UK tax resident under the SRT with as few as 46 days of presence in a tax year. Even if this was a continuous period over two tax years, it would not fulfil the SDLT residence test.
However, there are situations where the different tests could be an advantage. Suppose you wished to delay becoming UK tax resident until you had achieved 6 years of absence. Let’s say you don’t want to be UK tax resident until after 6 April 2022. It could look like this:
Suppose there is a purchase off plan with a Completion Date: 30 September 2022.
SDLT qualifying period: 1 October 2021 – 30 September 2023
UK tax years in this period: 21/22, 22/23 and 23/24
If: 0 days in the UK from 6 April 2021 until 15 September 2021
90 days in the UK during the 202-day period from 15 September 2021 until 5 April 2022
110 days in the UK during the 178-day period from 5 April 2022 until 30 September 2022
Then: UK tax statutory residence test 21/22 Not UK resident
22/23 UK resident
23/24 UK resident
SDLT residence 200 days of presence in the 365 days ended 30 September 2022 so non residents’ surcharge is not due at completion.
I stress this is only an example and 90 days in 21/22 can make you UK resident under the SRT.
In short, the divergence between the two tests of residence can be a trap for the unwary but where circumstances provide enough notice, it can also be an opportunity for planning to be arranged to optimise the position.