Budget update: SDLT for foreign buyers

In accordance with pre-budget speculation, in his budget speech to the House of Commons on 11 March 2020 the Chancellor announced the introduction of an additional limb of Stamp Duty Land Tax in the form of a Non Resident Surcharge (NRS) for non UK residents purchasing residential property in England and Northern Ireland.

Rates of 1 to 3% had been anticipated and the Chancellor took the middle course setting the rate of the NRS at 2%. The detail around this proposed change will be contained in the Finance Bill.

Usual practice is that the Budget Resolutions will be debated for four days after the statement, resulting in the Finance Bill which is published approximately one week after the Chancellor's statement.  In this year the Finance Bill is currently anticipated on 19th March.  Budget Resolutions can take immediate effect if the House of Commons agrees to them but the Finance Bill is needed to give them permanent legal effect.  With the current government majority it is highly unlikely that the Finance Bill could be voted down.  The possibility of it being delayed due to COVID19 is more likely.

In the statement the Chancellor announced that the NRS will come into effect from 1 April 2021 but made no reference to any transitional provisions. Until the Finance Bill is published the best guidance available on the likely transitional provisions is that released when SDLT was first introduced in 2003 and republished when the 3% surcharge for additional dwellings was introduced in 2016. Transitional provisions are relevant in relation to land transactions where contracts have been exchanged and/or completed either after or either side of the relevant dates which are the date of the Budget Statement (11 March 2020) and the date on which the surcharge comes into effect (1 April 2021).

The following is only speculation based on previous transitional provisions but in context what is possible is that:

•  Land transactions pursuant to contracts exchanged before 11 March 2020 will not attract the surcharge – irrespective of when they complete.

•  Land transactions pursuant to contracts exchanged during the period 11 March 2020 to 31 March 2021 which complete prior to 1 April 2021 will not attract the surcharge.

•  Land transactions pursuant to contracts exchanged after 1 April 2021 will attract the surcharge.

The biggest unknown is the position where exchange takes place before 1 April 2021 with completion after 1 April 2021.  This should become clear once the Finance Bill has been published. There are a number of other considerations and factors to be taken into account:

•  Exchange must be unconditional or the relevant date may be taken as the date when the contract goes unconditional;

•  Completion is generally taken to mean substantial performance of the contract – guidance suggests that this will be taken to mean when possession is given/taken and/or 90% or more of the consideration is paid;

•  Care needs to be taken around any subsequent variation or assignment of a contract so as not to create what could be treated as a new contract.

The timing and transitional provisions in relation to the NRS are of particular relevance to developers operating in England and Northern Ireland who are selling properties off plan to foreign buyers with anticipated completion dates extending to and beyond 1 April 2021.

For more information please contact Paul Paling, Head of the London Real Estate team.