For buyers of property in the UK, understanding the intricacies of Stamp Duty Land Tax (SDLT) is crucial. One significant aspect, for those buyers of residential property who do not reside in the UK, is the 2% surcharge introduced for non-residents on 1 April 2021. This surcharge can severely impact the amount of SDLT payable, especially on higher value properties. However, if your circumstances change after completion you may be eligible for a refund of this surcharge.
What is the 2% SDLT Surcharge?
The 2% SDLT surcharge applies to residential property purchases in England and Northern Ireland by non-resident buyers. This surcharge is in addition to the standard rates of SDLT, and any other surcharges payable for second homes or investment properties.
Broadly, the surcharge applies where the purchaser (or, if more than one, one of the purchasers) is not resident in the UK at completion. Only two exceptions are applicable,
- where purchasers are married or in a civil partnership with a UK resident who they are living with on the effective date of the transaction, or
- where a purchaser is a non-resident crown employee or spouse or civil partner of a non-resident crown employee (for example, a UK diplomat living abroad).
If neither of the above exceptions apply, and you think that you or a co-purchaser may be classified as non-UK resident, the following test should be considered:
If a purchaser is present in the UK for at least 183 days in any continuous one-year period within the two-year period starting a year before completion and ending a year after completion, that purchaser will be UK resident for the purposes of SDLT and the 2% surcharge will not apply. For reference, 183 days equates to 6 months out of the year.
Example
Mr Smith would like to purchase a flat in London but spends much of his time abroad. He has found a property and is due to complete on the transaction on 18 July 2024.
Therefore, the two-year period to look at will be from 18 July 2023 to 17 July 2025.
It is currently 12 July 2024, so Mr Smith counts the days he was in the UK at midnight from 18 July 2023 and calculates that it is only 180. However, as he is planning to be in the UK until after completion, he can also count the days between 13 July 2024 and 17 July 2024. This will be an additional 4 days, making a total of 184, and making him a UK resident for the purpose of SDLT on this transaction.
If, however, he had only counted 63 days, he could not state that he is a UK resident at completion.
It is important to note that although SDLT only applies to land transactions in England and Wales, days spent anywhere in the UK will count towards the residence test.
If the potentially non-resident purchaser is a company rather than an individual, an alternative test will apply.
Applying for a refund
You may qualify for a refund if, after completion of the transaction, your circumstances change such that you meet the criteria detailed above. You must apply for a refund within two years of the date of completion.
Example
Mr Smith had only been in the UK 63 days out of the year prior to the date of completion. These were all days spent in the UK within 3 months of the date of completion. In the 9 months following the purchase of his flat, he then spends an additional 135 days in the UK. Therefore, he will now be considered UK resident for the purposes of SDLT as he has been in the UK 198 days within a 365-day period. He can therefore apply for a refund.
If you think you may be eligible for a refund, you should gather all available evidence showing you have been present in the UK for the requisite period of time. This may include passport stamps, flight tickets, utility bills or bank statements with your UK address, or employment contracts and payslips if working in the UK.
Once an application is submitted, HMRC will typically respond within 35 working days, but this may take longer. When the application is processed, payment will be made in the sum of the refund amount and any interest accrued on that amount since payment was initially made.
However, receipt of the refund does not necessarily mean that HMRC have agreed to the lower SDLT amount. HMRC may, on further review of the application, open an enquiry within 9 months of the refund being processed and may ask for proof that the applicant meets the relevant residency requirements. As such, it is imperative that any collated evidence is stored.
In summary
Applying for a refund of the 2% SDLT surcharge can be a straightforward process if you meet the residency requirements and follow the application steps. However, it is always advisable to seek guidance on your particular circumstances, as incorrectly filing for and obtaining a refund may lead to the funds having to be repaid to HMRC with interest following an enquiry being opened into the matter.
We recently applied for a refund for a client and payment was received from HMRC within 14 days of submission of the refund request. If you require SDLT advice, please do contact a member of the conveyancing team.
This article was written by Maria Croca, a trainee solicitor.
