Tax Journal

Could an increase in stamp duty for non-UK residents work in practice?

4 October 2018

There’s a world of difference between a headline-grabbing announcement and a workable piece of tax law.

The big tax announcement immediately before the Conservative Party conference was the decision to increase stamp duty for non-UK residents. Putting the political aspects of the proposal to one side, it is worth thinking about some of the technical issues which would be involved in introducing such a policy.

First, who would it actually apply to? The headline writers have portrayed this as a tax on ‘foreigners’ buying property here but citizenship is not a concept which has relevance to UK taxation. Others have said that the charge will apply to those who ‘do not pay tax in the UK’. And the conservative party’s official tweet says: ‘We will apply a higher rate of stamp duty for non-UK residents’. These are all subtly different tests.

Let’s get a couple of things out of the way first. Stamp duty land tax (which is what we are talking about) is only payable in England and Northern Ireland: Wales and Scotland have their own property taxes, and this announcement will not apply there. Secondly, the proposal would almost certainly be discriminatory under European Law and therefore could only ever be introduced post-Brexit.

But is tax residence the most appropriate test? Any rental income from a property in the UK is chargeable to income tax regardless of the residence status of owner, and non-residents are now charged capital gains tax on the disposal of UK domestic property. So, the tax playing field for property is now level between residents and non-residents and there doesn’t seem to be a great deal of logic in making tax residence the test for the higher rate of SDLT.

And what if the property has been brought for the owner to live in? Owning a residence in the UK is one of the factors taken into account in determining whether somebody is a tax resident or not. It is possible that at least in some marginal cases the purchase of a residential property in the UK could turn somebody into a UK resident for tax purposes. Would the additional rate apply then?

Finally, what sort of property would the additional rate apply to? The tweet does not discriminate between residential and commercial property, but all of the context suggests that it is only the former which is the target of the new policy. That, of course, will mean that there will need to be a definition of where the boundaries lie.

None of this is to suggest that the policy could not be achieved. Far from it. But it does show that there is a world of difference between a headline-grabbing policy announcement and a set of rules which will define the scope of the tax and the way that it is to be administered. Let us hope that there is full consultation on what is proposed and that there is no rush to implement, as changes of this sort need careful consideration.