SDLTM09910 - SDLT - increased rates for non-resident transactions: Non-resident in relation to a chargeable transaction: Companies, second condition - para 7(3) Sch 9A FA03

(All legislative references are to Sch 9A FA03 unless otherwise stated)

Non-UK residents may acquire property using UK resident companies, allowing them to indirectly enjoy the economic benefits of property ownership. Without any additional rules, the surcharge would not apply where non-UK resident individuals use a UK resident company to purchase a dwelling. The second condition provides an additional residence test to UK resident close companies which takes their underlying ownership into account.

For the purposes of the surcharge, a company is non-resident in relation to a chargeable transaction if on the effective date of the chargeable transaction, the company is UK resident for the purposes of the Corporation Tax Acts, but:

  • is a close company;
  • meets the non-UK control test in relation to the transaction; and
  • is not an excluded company.

Meaning of “close company” (paragraph 8)

The close company rules in Chapter 2 of Part 10 of the Corporation Tax Act 2010 apply (paragraph 8(1)). More information on the close company rules can be found at CTM60000 onwards.

Broadly, a close company is one:

  • which is under the control of five or fewer participators (persons having a share or interest in the capital or income of the company), or any number of participators if those participators are directors; or
  • where more than half the assets of the company would be distributed to five or fewer participators, or to participators who are directors, in the event of the winding up of the company.

There are some exceptions to this general rule. For the purposes of the surcharge, the close company exceptions set out in sections 444 and 446 CTA 2010 are modified so that the following types of companies are treated as close (paragraph 8(2) and (3)):

  • a company controlled by one or more companies, none of which is a close company, and it cannot be treated as a close company except by taking a non-close company as one of the five or fewer participators requisite for its being so treated (see CTM60290); and
  • particular types of quoted companies in which the public holds 35% or more of the voting power (see CTM60310).