2% SDLT surcharge for non-UK residents.

Article | Sarah Davis | 23rd July 2020

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Draft legislation has now been released for the 2% SDLT surcharge for non-UK residents, which will come into effect on 1 April 2021. Under the proposals, the surcharge will be payable on purchases of dwellings (costing £40,000 or more) in England and Northern Ireland by non-resident individuals, partnerships, companies and trusts.

The surcharge will not impact on transactions that are deemed to be non-residential or mixed-use. However, it will be payable where the transaction is taxed at the residential rates and is in addition to the 3% surcharge for additional dwellings and the 15% flat rate payable by companies purchasing high value dwellings.

Existing reliefs and exemptions continue to apply.


The surcharge is relevant to freehold transactions and to the grant or assignment of a lease with more than 21 years to run. It is payable when one or more of the purchasers is non-UK resident for the purposes of these rules. (See below for limited reliefs.)

It is not yet clear what evidence will be required in support of the purchaser’s residency status. HMRC are expected to release guidance on this issue over the coming weeks.


An individual will be treated as UK resident if they have spent 183 days in the UK during a continuous period of 365 days starting 364 days before the purchase and ending 365 days after. It is the individual’s location at the end of the day that is important.

If the individual has not met the residency test at the time the SDLT return is filed, the surcharge is payable but may subsequently be reclaimed if all purchasers have met the residency test by the end of the 365 day period following the transaction.

The Government has no current plans to amend the application of these rules in respect of collective enfranchisement arrangements.


A company will be non-UK resident if:

  • it is not within the scope of UK Corporation tax at the effective date of the transaction, or
  • it is a close company that is controlled by one or more non-UK resident individuals.

There are specific rules for certain investment vehicles such as CoACS, REITS and Unit Trust schemes.


As with existing SDLT provisions, the rules will depend on the type of trust involved in the purchase:

  • The residency of a bare trust will be determined by the beneficiary.
  • The residency of a life interest trust is determined by the life tenant.
  • The residency of all other trusts is determined by the trustees. The trust will only be UK resident if all trustees are UK-resident under the appropriate SDLT tests.

A purchase of a dwelling by, or on behalf of, a partnership will be treated as a joint purchase by all the partners. If any of the partners do not meet the relevant SDLT residency tests, the surcharge will apply.

Reliefs from the surcharge
Crown employees

Where a Crown employee is subject to UK Income Tax, they will be able to claim relief from the surcharge if they do not meet the residency tests due to their employment. This relief will extend to spouses and civil partners who are living overseas with the Crown employee.


A relief from the surcharge is similarly available where spouses are jointly purchasing a dwelling and only one spouse meets the UK residency test.


If an individual subsequently meets the residency test set out above, it may be possible to reclaim the surcharge.

A refund is obtained by amending the SDLT return. This must be done within 2 years of the transaction.

Refunds are not available to companies, although the rules allow for a refund where the property has been purchased using alternative property financing (such as Shari’a law compliant mortgages) if the person who enters into the arrangements with the financial institution subsequently meets the residency tests.

Transitional arrangements

The surcharge applies to transactions with an effective date on or after 1 April 2021. However, the new rules will not affect transactions where contracts are exchanged on or before 10 March 2020 but do not complete until after 1 April 2021 unless there is a variation in the contract, an assignment of rights or the exercise of an option or right of pre-emption that occurs after 10 March 2020.

For more information please contact Sarah Davis (sdavis@pem.co.uk) or Judith Pederzolli (jpederzolli@pem.co.uk)

About the author

Sarah Davis

Sarah is a Director in our VAT team who specialises in the property sector. She is responsible for providing VAT Read more …

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