Just before last week’s Conservative party conference Theresa May announced that foreigners buying U.K. property will be charged a higher rate of stamp duty land tax or SDLT. This is, she says, a further tool to tackle the housing crisis in the wake of academic studies indicating that overseas investment pushes prices up and crowd locals out of the market.
Anyone with an interest in tax or property or both will know that this comes as the latest in a series of tax changes which, although not necessarily aimed at overseas buyers, have nevertheless hit them hard. Starting in 2013 with the annual tax on enveloped dwellings, or ATED, a flat-rate tax for high-end corporate-owned properties, there has been a change in property tax pretty much every year since.
From the tax practitioner’s viewpoint, the announcement seems woolly; it’s not at all clear which foreigners or non-residents are to be targeted. If it is to be based on tax residence then what about the overseas residents looking to come and work in the UK. Will they have to wait until they arrive and register with HMRC before they can escape the surcharge? Will people need to be ‘full’ taxpayers or would a resident non-UK domicile on the remittance basis be exempt? Overseas companies are likely to be paying income tax on rental income or ATED – will that qualify?
We also have no idea how much the surcharge is likely to be. SDLT rates on residential property have already escalated from a maximum of 5% as recently as 2012 to a 15% maximum now. The existing additional 3% SDLT charge almost always applies to foreign purchasers as they usually already have a property in their home country. Perhaps we are now to have a super-surcharge?
All in all, given that Britain is now trying to maintain an outward-looking approach, it would be unfortunate if overseas property investors felt that this surcharge was the last straw. The government’s announcement raises lots of questions, some of which may well find answers during the consultation process, but in the meantime, non-residents looking to buy UK residential property who wish to avoid further SDLT surcharges should proceed with their purchase as soon as possible.