Will the additional 2% surcharge on overseas buyers deter them?
From 1st April 2021, overseas buyers will face a 2% surcharge on their SDLT bill for buying property in the UK. To put this in context, those buying a £5 million property, who already own one or more properties in the UK or elsewhere in the world, will be liable for £748,750 in SDLT. Those buying at the £10 million price point will be liable for £1,445,000 in SDLT.
The sums going to the Chancellor do appear eye-watering at first, but will they put off overseas buyers who have, for the last two decades or more, seen the UK, and particularly the London property market, as a safe place to invest and live? I don’t think so. Despite the impact of the coronavirus on London’s arts and entertainment scene, London is still the pre-eminent global city for the global elite to have a home.
One piece of advice for those who have lived in the UK for several years is to look into becoming British citizens. I have several French clients who are already in the process of applying for citizenship. If you are an overseas national looking to buy property in London post-April 2021, having a British passport could significantly reduce your SDLT bill.
What else should overseas buyers be aware of in the future?
Those who like to structure their property purchases in the UK through overseas companies, for confidentiality or tax reasons, should note that the Government has announced their intention to introduce a register of beneficial owners of overseas companies and other legal entities owning UK property in 2021.
The implications are that the overseas purchasing entity will not be able to buy, sell, charge or grant a long lease of property in the UK unless they are registered in the new register, to be managed by Companies House. The register will record details of the beneficial ownership of the company, which, in its simplest terms, will mean those who directly or indirectly hold more than 25% of the shares or voting rights in the company. Whilst overseas trusts are not caught, they are due to be subject to similar requirements to register beneficial ownership of the trust on the UK trust register, coming into force in 2021, under the EU’s Fifth Money Laundering Directive, which will open up the register to public inspection.
Buying through overseas structures has been losing its appeal for some time brought about by the Annual Tax on Enveloped Dwellings and changes to Inheritance Tax. The introduction of these new registers will mean the advantages of structuring through an overseas entity will diminish further. The aim of the Government is to improve transparency and minimise burdens on legitimate commercial activity – whether they are striking the right balance is yet to be seen.
What is the outlook for domestic buyers in the UK?
I expect first time buyers to be the busiest in the market in the next six months or so as they look to take advantage of the lifting of the SDLT threshold which ends on 31st March 2021. I am already seeing this free up those further up the ladder who may have been sitting tight waiting for the right opportunity to move.
There will continue to be a drive for more space as people realise working from home could be a semi-permanent fixture. This will mean flats and houses with home-working potential and outside space will command a premium.