26 July 2021

Elizabeth Small writes for Tax Journal on NRSDLT

Tax Partner, Elizabeth Small, has authored an article for Tax Journal entitled 'FA 2021: SDLT - increased rates for non-residents'.

The article was first published on Tax Journal on 15 July 2021 and can be read in full below.

FA 2021: SDLT - increased rates for non-residents

After the NRCGT comes the NRSDLT

Once we had NRCGT it seemed inevitable that NRSDLT (the 2% surcharge regime) for non-UK tax residents buying residential property would be introduced. Of course (as we know), NRCGT started off as only being applicable to residential property, but the scope was changed in 2019 to include commercial property, so perhaps it is not totally idle speculation to assume the same might happen with NRSDLT.

Because NRSDLT is a surcharge like the higher rates for additional dwellings (HRAD), it is easy to assume that the rules are similar in their application but there are differences. HRAD does not apply to rent, but NRSDLT does, which means even a modest ground rent on a long lease will attract the 2% surcharge (perhaps not significant in terms of client cashflow, but important for accurate filing of returns).

HRAD may not apply on a mixed purchase of a block of flats with commercial property on the ground floor, but NRSDLT would. HRAD has exceptions including replacement of main home and also on divorce/separation; NRSDLT does not.

NRSDLT requires the taxpayer to consider where they are tax resident for these rules and that places a great burden on conveyancers or the risk of making assumptions that may prove to be inaccurate (especially for company purchasers). The non-resident individual, if they then move to the UK and spend the requisite 183 days in the year after the effective date, can reclaim their SDLT. Timing will be crucial. Many people will have substantially performed their purchase rather than waiting for formal completion to beat the 30 June deadline, so their clock will start ticking early. The clock also starts ticking early where an option fee is paid and the option is exercised more than a year later while the buyer is still non-resident, as in those circumstances whilst NRSDLT may become reclaimable on the exercise price the grant fee will be trapped in the NRSDLT regime. Unlikely to be of significant cashflow importance but irritating and resulting in unnecessarily complicated calculations.

One important concept that NRSDLT shares with HRAD (and other SDLT regime changes) is that of grandfathering of old contracts and the importance of being aware of the transitional rules – so proceed with extreme caution when dealing with old contracts.

Elizabeth is a Partner in our Tax team.


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