HMRC SDLT: SDLTM09850 – SDLT – increased rates for non-resident transactions: Contents
SDLT Increased Rates for Non-Resident Transactions
This section of the HMRC internal manual provides guidance on the increased rates of Stamp Duty Land Tax (SDLT) applicable to non-resident transactions. It outlines the principles and concepts related to these rates.
- Details the criteria for non-residency status.
- Explains the calculation of increased SDLT rates.
- Provides examples of applicable transactions.
- Includes exceptions and reliefs available to non-residents.
- Offers guidance on compliance and reporting requirements.
Read the original guidance here:
HMRC SDLT: SDLTM09850 – SDLT – increased rates for non-resident transactions: Contents
Guide to SDLT Increased Rates for Non-Resident Transactions
Introduction
In this section, we explain how the increased rates for Stamp Duty Land Tax (SDLT) apply to non-residents as outlined in the relevant legislation. Under section 75ZA and Schedule 9A of the Finance Act 2003 (FA2003), specific rules are in place to reflect the higher rates of SDLT which apply when non-residents purchase residential property in the UK.
Starting Point and Transitional Guidelines
The SDLT increased rates for non-resident transactions began based on transitional rules set out in paragraph 6 of Schedule 16 of the Finance (No.2) Bill 2021. These rules clarify when the new rates take effect and provide guidance for transactions that were started before the changes were announced.
– Transitioning: If a buyer started a process but completed after the changes came into effect, they might be required to pay the new, higher rates.
Understanding Non-Resident Transactions
According to paragraph 2 of Schedule 9A of FA2003, a transaction is considered a non-resident transaction if at least one party involved is not a resident of the UK.
– Who is a Non-Resident?: Generally, individuals who do not have a home in the UK and spend less than 183 days in the country during a tax year may be classified as non-residents.
Definition of a Dwelling
The term ‘dwelling’ is important as many of the SDLT rates apply specifically to dwelling purchases. According to paragraph 20 of Schedule 9A of FA2003, a dwelling may include houses, apartments, or similar types of properties used for residential purposes.
– Examples of Dwellings: A simple house is a dwelling, while a flat or studio apartment also counts as a dwelling under SDLT guidelines.
Rates of SDLT for Non-Resident Transactions
As stated in section 75ZA of FA2003, different rates apply to non-residents compared to UK residents.
– Standard Rates: The standard rates for UK residents are typically lower than those imposed on non-residents.
– Increased Rates: Non-residents may find themselves paying additional rates that can significantly increase the overall tax liability on property purchases.
Temporary Reduced Rates for Non-Residents
Paragraph SDLTM09870A addresses how some temporary reduced rates may apply to non-residents.
– Application of Reduced Rates: Certain criteria must be met before non-residents can qualify for these lower rates. This may include specific transaction dates or types of properties being purchased.
Joint Purchasers
When two or more individuals purchase a property together, the rules in paragraph 2(1)(a) of Schedule 9A apply.
– Implication for Joint Purchasers: If at least one purchaser is a non-resident, the increased rates will generally apply regardless of the residency status of the other purchasers.
Basic Rules for Non-Residents in Chargeable Transactions
In paragraph 4 of Schedule 9A, it is explained that individuals who are not residents for SDLT purposes are treated as non-resident buyers in a chargeable transaction.
– Example of Basic Rule: If a British citizen lives abroad for most of the year and buys a house in the UK, they would be considered a non-resident for SDLT purposes and would potentially face higher tax rates.
Special Cases for Spouses and Civil Partners
According to paragraph 12 of Schedule 9A, there are specific rules concerning the spouses or civil partners of UK residents.
– Implications: Even if one partner is a UK resident, if the other is non-resident, the couple may still face higher SDLT rates, particularly if the non-resident partner is involved in the transaction.
Chargeable Transactions for Non-Resident Individuals – Special Cases
In paragraph 5 of Schedule 9A, special circumstances for non-resident individuals concerning chargeable transactions are defined.
– What qualifies as a Chargeable Transaction? This involves any transfer of ownership or acquisition of a property, where one of the parties is not a UK resident.
Non-Residents Working for the Crown
Paragraph 6 of Schedule 9A outlines how non-resident individuals in Crown employment are dealt with.
– Conditions: Special provisions may allow them certain considerations, but the general rule on non-resident transactions still applies.
Company Involvement in Non-Resident Transactions
Non-resident companies are covered under paragraph 7 of Schedule 9A. This section provides clarity on when and how these companies can be considered non-residents in relation to chargeable transactions.
– Example: A company based in the US that purchases property in the UK would be considered a non-resident company, thus subject to increased rates.
Conditions for Non-Resident Companies
Further clarification for non-resident companies can be found in paragraphs 7(2) and 7(3) of Schedule 9A.
– First Condition: The primary condition outlines that the company must not be controlled by UK residents to be treated as a non-resident.
– Second Condition: This condition specifies that even if a company is registered in the UK, it may still be treated as non-resident if the control lies outside the UK.
Non-UK Control Tests
Paragraphs 9 and 9(7) specify tests that determine a company’s residency based on control.
– General Partners Test: This applies specifically to partnerships where the general partners are not UK-based. If they meet this criterion, the partnership can be deemed non-resident.
Attributing Rights and Powers
The rights and powers within non-resident companies are addressed in paragraph 10 of Schedule 9A.
– Understanding Attribution: It’s important to assess how control is divided among partners and shareholders and to determine if a company meets the non-resident conditions.
Excluded Companies
Paragraph 11 provides specifics on which types of companies are excluded from non-resident consideration.
– Relevant Examples: Companies that operate primarily in the UK or have UK institutions as shareholders may not qualify as non-resident.
Trusts and Leases
According to paragraphs 13 and 14 of Schedule 9A, there are particular rules surrounding bare trusts and the purchase of leasehold properties, especially for those beneficiaries who are entitled to occupy.
– Impacts on Lease Transactions: These transactions can also be subject to the increased SDLT rates if the beneficiaries are classified as non-residents.
Co-Ownership Authorised Contractual Schemes
Paragraph 15 discusses how co-ownership schemes can impact non-resident transactions.
– Co-Ownership Impact: When properties are owned jointly in these arrangements, the residency status of all participants will determine the applicable SDLT rates.
Alternative Property Financing
In paragraph 16, the regulations covering alternative property finance arrangements are laid out.
– Property Finance Considerations: Non-residents can also encounter increased rates when engaging in such financial methods, which can complicate the tax implications further.
Contract Completion Scenarios
Paragraph 17 discusses the completion of contracts that were begun before the SDLT rate changes but were substantially performed.
– Completion Rules: It is crucial to identify such situations to determine whether the increased rates will apply based on the specifics of each case.