In recent years, there has been a consistently growing interest by investors in purchasing UK residential properties, London in particular is an attractive destination for second homes or investment opportunities.
Owning a property in the UK can indeed be a good investment for both UK residents and non-UK residents, but it does come with Stamp Duty Land Tax (SDLT) implications.
This article focuses on the SDLT issues applicable to both UK and foreign buyers looking for a residential property in England and Northern Ireland. The taxation is different if the property is in Scotland (Land and Buildings Transaction Tax) or Wales (Land Transaction Tax).
Stamp Duty Land Tax (SDLT) - Individuals
When individuals purchase a residential property in England and Northern Ireland (whether freehold or leasehold), they may be liable to pay the Stamp Duty Land Tax.
The amount of SDLT to pay depends on several factors, such as the purchase price and whether it is their first home, or additional property, or a residential/commercial property and the resident status of the buyer (UK- or non-UK resident).
Stamp Duty rates on Residential properties (from 23 September 2022 to 31 March 2025)
|
Purchase Price
|
Standard SDLT rate (*)
|
Higher SDLT rate on second homes or buy-to-let (*) (**)
|
|
Up to £250,000
|
Zero
|
3% (if chargeable consideration is above £40,000)
|
|
£250,001 to £925,000
|
5%
|
8%
|
|
£925,001 to £1.5m
|
10%
|
13%
|
|
Over £1.5m
|
12%
|
15%
|
* The SDLT rates apply until 30 March 2025
**Dwelling acquired by a Non-Natural Person
Rates are charged on the portion of the consideration that falls within each rate band.
Standard rates on purchases by individuals increase by 3% for purchases of additional residential properties (such as second homes and buy-to-let properties) of a residential property, even if they own another residential property anywhere in the world.
Transactions under £ 40,000 are excluded by the surcharge.
However, a relief is available for first-time buyers whether UK residents or non-UK residents. The UK tax authority, defines a first-time buyer as “an individual or individuals who have never owned an interest in a residential property in the United Kingdom or anywhere else in the world and who intends to occupy the property as their main residence.”
If you've inherited property or held a stake in property through family, you won't be considered a first-time buyer, either.
Under this tax relief, a UK resident individual who buy a residential property whose purchase price is up to £625,000 will pay no SDLT on the first £425,000 and pay 5% on the remaining amount up to £ 200,000 (portion from £425,001 to £625,000).
For properties worth over £625,000, the full “standard” rate of SDLT is applied.
For non-UK resident individuals the “NR surcharge” applies (see paragraph below).
|
Purchase Price
|
SDLT rate
|
Non-Resident SDLT rate
|
|
Up to £425,000
|
0%
|
2%
|
|
£425,001 to £625,000
|
5%
|
7%
|
SDLT rates for non-UK resident individuals
An additional 2% SDLT rate (the “NR Surcharge”) on top of the standard stamp duty rates for UK residents applies from 1st April 2021 to non-UK residents purchasing their first residential property in England and Northern Ireland (first-time buyer relief is available to non-UK residents as well); and when combined with the additional 3% higher rate for additional dwellings, a 5% surcharge applies to non-UK residents purchasing additional residential properties.
See Table below if the buyer is not resident for SDLT purposes:
|
Purchase Price
|
Non-Resident
Standard SDLT rate
|
(**) Non-Resident
Higher SDLT rate on second homes or buy-to-let
|
|
Up to £250,000
|
2%
|
5%
|
|
£250,001 to £925,000
|
7%
|
10%
|
|
£925,001 to £1.5m
|
12%
|
15%
|
|
Over £1.5m
|
14%
|
17%
|
As a result, a non-UK resident purchaser of a second home in England and Northern Ireland is likely to pay SDLT starting at 5% for the portion of the purchase price up to £250,000 and progressively increasing to 17% for any portion above £1.5 million.
Stamp Duty Land Tax (SDLT) - Companies & Non-Natural Persons (NNPs) (**)
Companies or any non-natural person (such as a partnership where one or more of the partners is a company or collective investment scheme) must pay a 3% SDLT surcharge on top of the standard SDLT rate (so called “higher SDLT rates”) on purchases of any residential property worth above £40,000. This is the case regardless of whether it is the first property purchased or not.
If the residential property consideration exceeds £500,000, a flat 15% higher threshold SDLT rate for corporate bodies may be charged.
The 15% rate does not apply to a residential property bought by a company that is acting as a trustee of a settlement.
Relief from the 15% higher rate charge may be available if the property meets some specific requirements.
The 3% higher rate surcharge does not apply where the 15% rate applies.
SDLT rates for non-UK resident companies
Non-resident companies (including UK registered companies controlled by non-residents) must pay a 2% non-resident surcharge on top of the non-resident higher rate or, if the property is 'high value', the higher value rate.
As a result, the tax position is more onerous on the acquisition of a residential property where the consideration is more than £1.5m and the buyer is a non-resident company: a flat SDLT rate of 15% plus a 2% surcharge has to be paid because the company is not resident in the UK.
Stamp Duty Land Tax (SDLT) - Trust
Bare Trust
If a trustee buys on behalf of a bare trust, the beneficiary of the trust is treated as the buyer and its residence status will be considered to determine whether the purchase is subject to the 2% NR surcharge or not.
Other than a Bare Trust
On the other hand, if a residential property is purchased by a trustee of a trust other than a bare trust (for example, it is a discretionary trust), beneficiaries' rights must be investigated:
- the beneficiary will be treated as the buyer if it is entitled to either:
- occupy the property for life;
- receive income from the property.
- the trustee will be treated as the buyer if they do not give the beneficiary the right to occupy a property for life or receive income from it.
In that case, where a trustee of a discretionary trust buys a property, the purchase is treated as if it were made by a company rather than an individual. Therefore, a trustee of a discretionary trust will always pay SDLT at the additional 3% rates (“higher SDLT rates”) and non-UK resident trustees will also be liable to the 2% surcharge (“NR surcharge”).
However, these surcharges may not apply if a UK resident beneficiary has a life interest in the trust. Depending on the circumstances, planning could therefore involve giving a beneficiary who plans to occupy the property a life interest under the trust to achieve a SDLT saving.
In conclusion, the SDLT analysis requires a thorough understanding of both the property itself (as in some limited circumstances it may be possible to apply partial relief) and of the purchaser’s specific circumstances.
***
The information provided in this article is of a purely general nature and is not a substitute for specific advice that may be requested here.
