The 2020 Budget included an announcement that an additional 2% would be charged on residential properties purchased by overseas buyers from April 2021.  If non-residents do not intend to move to the UK and live in the property themselves, they will have to pay the additional 3% on top of that payable by owners of second homes.  Thus overall they will pay 5% more than the standard rates.

With basic stamp duty rates ranging from zero to 12% non-residents could pay up to 17% on the value of properties over £1.5 million:

• Up to £125,000 – Zero
• The next £125,000 (the portion from £125,001 to £250,000) – 2%
• The next £675,000 (the portion from £250,001 to £925,000) – 5%
• The next £575,000 (the portion from £925,001 to £1.5m) – 10%
• The remaining amount (the portion above £1.5m) – 12%

The new surcharge for overseas buyers is expected to affect around 70,000 of the UK’s total 1.2 million annual property transactions, with most of the impact likely to be in London, the UK’s most international market.

As the new charges do not come into effect until April 2021 there is likely to be a rush by British Expats and Foreign Citizens considering purchasing Buy to Let property in the UK to complete their purchase within the next 12 months.  Clearly a year is a long time and many things may impact the attractiveness of the UK buy to let market, but this will create extra demand and force the timing of many investments.

Skipton International report that research from Homelet, a British property management agency, shows that UK rental prices are rising and therefore UK Buy to Let property is still considered an attractive investment option by many.

Roger Hughes, Skipton International’s Business Development Manager says:

“Customers purchasing Buy to Let property are generally looking at the medium to longer term in relation to their investment. As rental prices continue to rise and the UK rental market is strong we are seeing increased interest for mortgages for UK Buy to Let property”.

Currency exchange rates are likely to have an impact and this may be more significant for foreign investors than this surcharge with similar charges seen in other popular international property markets.

The Times reports that the details of how the tax will be applied are not clear and quote Sean Randall, a partner at Blick Rothenberg, an accountancy firm, who said:

“Until the chancellor publishes the results of the consultation, we don’t know the detail of how this tax might work. The original proposal looked like it would affect returning British ex-pats and those returning from secondment.”

They also quote Tom Evennett, head of private client services at EY, who said:

“The consultation in 2019 included some surprises in the definition of non-resident: for example, those who spend less than six months in the UK in a tax year may find themselves subject to the surcharge. This could have an unexpected impact on mobile workers and on globally mobile entrepreneurs.”

Therefore there remains doubts over who would be subject to the new surcharge and it will be important to keep an eye out for announcements over the coming months.