SDLT Surcharge: Non-Resident Companies and Close Company Conditions Explained

When a UK-resident company is treated as non-resident for the SDLT surcharge

A UK-resident company buying a dwelling can still be treated as non-resident for the SDLT non-resident surcharge if, on the transaction’s effective date, it is a close company, meets the non-UK control test, and is not an excluded company. This anti-avoidance rule is designed to stop non-UK residents avoiding the surcharge by buying through a UK company.

• The rule applies to a particular property transaction and is tested on the effective date of that purchase.
• A company must be UK resident for corporation tax, be a close company, satisfy the non-UK control test, and not be an excluded company.
• A close company is broadly one controlled by five or fewer participators, or by participators who are directors, with special rules also looking at winding-up rights.
• For SDLT, the usual close company exceptions are modified, so some companies may still count as close even if they would not for other tax purposes.
• Checking only that the company is UK resident is not enough; advisers must also review ownership, control, participators, directors, and any exclusion.
• If the rule applies, the company may face the non-resident SDLT surcharge even though it remains UK resident for corporation tax purposes.

Scroll down for the full analysis.

When a UK-resident company is treated as non-resident for the SDLT non-resident surcharge

This page explains one of the anti-avoidance rules behind the SDLT non-resident surcharge on dwellings. The rule matters where a property is bought by a company that is UK tax resident, but is ultimately owned or controlled by people outside the UK. In those cases, the company may still be treated as non-resident for surcharge purposes.

What this rule is about

The non-resident surcharge is designed to apply not only to obvious non-UK buyers, but also to some structures where non-UK residents buy through a UK company.

Without this rule, a non-UK resident individual could potentially avoid the surcharge by using a UK-resident company to acquire a dwelling. The legislation therefore looks beyond the company’s own UK tax residence and asks whether the company is a close company and whether its control is sufficiently non-UK in nature.

This is the “second condition” for companies in paragraph 7(3) of Schedule 9A to Finance Act 2003. It applies only in relation to a particular chargeable transaction, and the test is applied on the effective date of that transaction.

What the official source says

The source says that a company is treated as non-resident in relation to a chargeable transaction if, on the effective date:

• the company is UK resident for the purposes of the Corporation Tax Acts,
• the company is a close company,
• the company meets the non-UK control test in relation to the transaction, and
• the company is not an excluded company.

So this is not a general rule that all UK-resident companies are outside the surcharge. Quite the opposite: some UK-resident companies are pulled back into the surcharge if they are closely held and non-UK controlled.

The page also explains the meaning of “close company”. For this purpose, the close company rules in Chapter 2 of Part 10 of the Corporation Tax Act 2010 apply.

Broadly, a close company is one that is:

• under the control of five or fewer participators, or any number of participators if those participators are directors, or
• a company where, on a winding up, more than half of its assets would be distributed to five or fewer participators or to participators who are directors.

A participator is broadly a person with a share or interest in the company’s capital or income.

The source also says that, for surcharge purposes, some of the usual exceptions in the close company rules are modified. As a result, certain companies that might otherwise escape close company treatment are still treated as close for this SDLT rule. The source identifies two categories in particular:

• a company controlled by one or more companies, none of which is itself close, where the company would only fail to be close because one of those non-close companies is counted among the relevant five or fewer participators, and
• certain quoted companies in which the public holds at least 35% of the voting power.

The practical message is that the SDLT rule uses an expanded version of the close company concept. It is deliberately harder to argue that a company falls outside the rule simply because of a technical close company exception.

What this means in practice

If a company buying a dwelling is plainly non-UK resident, the surcharge rules may already apply under the main residence test for companies. This page deals with a different problem: a company is UK resident, but its ownership or control points overseas.

In practice, this means conveyancers, taxpayers and advisers should not stop the analysis at “the company is UK resident”. That is only the starting point.

You must then ask:

• Is the company a close company under the modified SDLT version of the close company rules?
• Does it meet the non-UK control test for the transaction?
• Is it an excluded company?

If the answer to those questions is yes, yes, and no, the company is treated as non-resident for this transaction even though it is UK resident for corporation tax purposes.

That can trigger the non-resident surcharge on the acquisition of a dwelling.

The rule is aimed at underlying economic ownership. HMRC’s point is that non-UK residents should not be able to enjoy the benefits of UK residential property indirectly through a UK company without the surcharge being considered.

How to analyse it

A sensible way to approach this rule is to work through the conditions in order.

First, confirm the company’s ordinary tax residence status. This rule only matters where the company is UK resident for the purposes of the Corporation Tax Acts. If it is not UK resident, different company residence rules may already bring it within the surcharge.

Second, test whether the company is a close company. Do not rely on a quick impression that the company is “widely owned” or “group owned”. The statutory close company rules are technical. You need to look at control, participators, directors, and in some cases the position on a hypothetical winding up.

Third, remember that the normal close company exceptions are modified for this SDLT purpose. A company that might not be close in a corporation tax context may still be treated as close here.

Fourth, consider the non-UK control test. The source page assumes that test is addressed elsewhere, but makes clear that it is a separate condition that must be met in relation to the transaction.

Fifth, check whether the company is an excluded company. Again, the detail sits elsewhere in the legislation or guidance, but the source makes clear that exclusion status can prevent the company being treated as non-resident under this condition.

Finally, apply the test at the correct time. The relevant date is the effective date of the chargeable transaction. Ownership and control can change, so timing matters.

Example

Illustration: A company incorporated and tax resident in the UK buys a dwelling. It is owned by a small number of individuals, all of whom are non-UK resident. If the company is a close company, meets the non-UK control test, and is not an excluded company, it may be treated as non-resident for surcharge purposes even though it is UK resident for corporation tax.

By contrast, if the same company were not a close company, this particular “second condition” would not be met. That does not automatically settle the SDLT position, but it would mean this specific rule does not apply.

Why this can be difficult in practice

The main difficulty is that this rule combines several technical concepts from different parts of the tax code.

“Close company” is not just a question of counting shareholders. The legislation looks at control, participators, directors, and sometimes entitlement to assets on a winding up. Group structures, shareholder agreements, special rights, and indirect interests may all matter.

There is also a risk of using the wrong version of the close company rules. For this SDLT purpose, some usual exceptions are switched off or modified. A conclusion reached for corporation tax or another purpose may not carry across unchanged.

The source page also refers to the non-UK control test and excluded companies without setting out their detail. That means this page cannot be read in isolation. Whether the surcharge applies may depend on those additional rules.

Finally, the test is transaction-specific and date-specific. A company’s status can depend on the facts at the effective date of the purchase, not just its general position over time.

Key takeaways

• A UK-resident company can still be treated as non-resident for the SDLT non-resident surcharge.
• This can happen where the company is a close company, meets the non-UK control test, and is not an excluded company.
• For this purpose, the close company rules are modified, so some companies are treated as close even if a usual exception might otherwise apply.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: SDLT Surcharge: Non-Resident Companies and Close Company Conditions Explained

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