The Treasury’s draft 2020 Finance Bill sets out the measures intended to be enacted from April next year. Most of the measures had been announced previously, but one notable omission was the proposed Stamp Duty Land Tax (SDLT) surcharge for non-UK residents.
This surcharge was originally announced by Theresa May at the Conservative Party conference last year, with the funds promised to be used to tackle homelessness. The policy was then included in the 2018 Budget, and a consultation was launched in January.
Aside from the political question of whether or not further increases in SDLT are necessary or worthwhile, the policy detail that was provided in the consultation document contained a number of concerning elements.
The first issue is the matter of complexity – Stamp Duty was always a subject with the potential for great complexity, but this complexity was usually reserved for complex transactions. It is a major flaw in the SDLT legislation that even straightforward transactions can give rise to significant difficulty. An individual purchasing property in the UK already needs to consider the residential vs non-residential rates (a very controversial subject at present), but also the 3% Higher Rate for Additional Dwellings, the possibility of Multiple Dwellings Relief and First Time Buyers’ Relief. This promised to be a further cause of difficulty for the client and their conveyancing solicitor, and one which needs to be resolved very quickly given the reduced 14-day SDLT return deadline.
A more technical difficulty was the odd reluctance of the Treasury to use the Statutory Residence Test, which applies for income tax and capital gains tax, to decide whether someone was a non-UK resident for this new SDLT charge. If enacted, it will be relatively common for an individual to be UK resident for income tax purposes, but non-UK resident for SDLT purposes. There was a similar difficulty for companies, where companies that are resident for corporation tax could be non-resident for SDLT.
There is now also the position in Scotland and Wales to consider – each of those has its own property tax system and its own version of SDLT. We have seen in recent years that where the Treasury has introduced additional complexity in SDLT, the Scottish government in particular has sought to achieve a similar result via more straightforward methods – the replacement of ‘Section 75A’ with a straightforward anti-avoidance rule, for example, or their implementation of First Time Buyers’ Relief by changing the bandings. While this is to be applauded generally, the effect of further divergence between the tax systems of Scotland, Wales and the rest of the UK makes advising clients considerably more difficult.
All in all therefore, the postponement of this new legislation is to be welcomed. If the policy of deterring wealthy investors from buying property in the UK is considered to be a good one, then we hope it can be implemented in a way which does not add to the already creaking SDLT legislation, nor causes unfairness for those resident here.
For advice regarding any of the issues raised here, please contact your usual Saffery Champness partner, or contact Adam Kay.