SDLTM09935 - SDLT - increased rates for non-resident transactions: Non-resident in relation to a chargeable transaction: Companies, second condition, examples

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

Example 1

Esther and Dahlia each own 50% of the share capital in Black Starling Ltd, a UK resident company for the purposes of Corporation Tax. It is not an excluded company under paragraph 11.

On 1 February 2025, Black Starling Ltd purchases a freehold residential property in England for £465,000. To determine whether Black Starling Ltd is non-resident in relation to this transaction, we need to consider whether the second condition set out at paragraph 7(3) applies.

Is Black Starling Ltd a close company under paragraph 8?

Yes, Black Starling Ltd is close as it is under the control of two participators.

Non-UK control test

As the purchaser is a company, we need to apply the residence test at paragraph 5(1) to determine whether Esther and Dahlia are relevant participators.

Between 2 February 2024 and 1 February 2025:

  • Esther spent 185 days in the UK. She is therefore UK resident in relation to the transaction and is not a relevant participator; and
  • Dahlia spent 38 days in the UK. She is therefore non-resident in relation to the transaction and is a relevant participator.

As Dahlia only owns only 50% of the share capital, she does not control Black Starling Ltd. The company is therefore not under the control of relevant participators in relation to the transaction, and the non-UK control test is not met. Hence, the purchase is not liable to the surcharge.

Example 2

Mystic Orleans Ltd is a UK resident company for the purposes of Corporation Tax. It is not an excluded company under paragraph 11. On 1 February 2025, Mystic Orleans Ltd purchases a freehold residential property in Northern Ireland for £900,000.

To determine whether Mystic Orleans Ltd is non-resident in relation to this transaction, we need to consider whether the second condition set out at paragraph 7(3) applies.

Is Mystic Orleans Ltd a close company under paragraph 8?

The share capital of Mystic Orleans Ltd is held as follows:

  • 40% – Black Starling Ltd;
  • 40% – Atlantic Pack Ltd; and
  • 20% – Volterra Forks Ltd.

Mystic Orleans Ltd is therefore a close company as any two or more of its participators control it.

Non-UK control test

We have already determined in example 1 that Black Starling Ltd does not meet the non-UK control test in relation to a chargeable transaction carried out on 1 February 2025. It is therefore not a relevant participator of Mystic Orleans Ltd in relation to the transaction.

We need to determine whether Mystic Orleans Ltd’s remaining participators are UK resident close companies and apply the residence test at paragraph 5(1) to the participators of Atlantic Pack Ltd and Volterra Forks Ltd to determine whether those companies meet the non-UK control test and are relevant participators of Mystic Orleans Ltd in relation to the transaction.

  • Atlantic Pack Ltd
Is Atlantic Pack Ltd a close company under paragraph 8?

Atlantic Pack Ltd is a UK resident company for the purposes of Corporation Tax and is not an excluded company under paragraph 11. Its share capital is equally shared between Ansel, Mohammed and Jackson. Atlantic Pack Ltd is therefore a close company as any two or more of its participators control it.

Non-UK control test

Between 2 February 2024 and 1 February 2025:

  • Ansel spent 187 days in the UK. He is therefore UK resident in relation to the transaction;
  • Mohammed spent 93 days in the UK. He is therefore non-resident in relation to the transaction; and
  • Jackson spent 105 days in the UK. He is therefore non-resident in relation to the transaction.

Together, Mohammed and Jackson control Atlantic Pack Ltd. The company is therefore under the control of non-resident participators and meets the non-UK control test. Atlantic Pack Ltd is therefore a relevant participator of Mystic Orleans Ltd in relation to the transaction.

  • Volterra Forks Ltd
Is Volterra Forks Ltd a close company under paragraph 8?

Krishna and Aadhya are siblings, and each own 50% of the share capital in Volterra Forks Ltd. The company is under the control of fewer than 5 participators and is therefore a close company. Volterra Forks Ltd is UK resident for the purposes of Corporation Tax and is not an excluded company under paragraph 11.

Non-UK control test

Between 2 February 2024 and 1 February 2025:

  • Krishna spent 275 days in the UK. He is therefore UK resident in relation to the transaction; and
  • Aadhya spent 105 days in the UK. She is therefore non-resident in relation to the transaction.

However, as Krishna and Aadhya are brother and sister, they are associates within the meaning of the close company rules. Therefore, Krishna’s rights may be attributed to Aadhya. Volterra Forks Ltd is therefore under the control of a non-resident participator and meets the non-UK control test. Hence, the company is a relevant participator of Mystic Orleans Ltd in relation to the transaction.

Together, Atlantic Pack Ltd and Volterra Forks Ltd control Mystic Orleans Ltd. Mystic Orleans Ltd is therefore under the control of relevant participators in relation to the transaction. Hence Mystic Orleans Ltd meets the non-UK control test.

As Mystic Orleans Ltd is not an excluded company, it therefore meets the second condition at paragraph 7(3) and is non-resident in relation to the transaction.

Example 3

Amoury Sucre Ltd is a UK resident company for the purposes of Corporation Tax. It is not an excluded company under paragraph 11. On 1 February 2025, Amoury Sucre Ltd purchases a freehold residential property in England for £700,000.

To determine whether Amoury Sucre Ltd is non-resident in relation to this transaction, we need to consider whether the second condition set out at paragraph 7(3) applies.

Is Amoury Sucre Ltd a close company under paragraph 8?

The share capital of Amoury Sucre Ltd is held as follows:

  • 50% – Tawanda PLC;
  • 25% – Black Starling Ltd; and
  • 25% – Sipsey Ltd.

Amoury Sucre Ltd is therefore a close company as it is under the control of any two participators.

Non-UK control test

We have already determined in example 1 that Black Starling Ltd does not meet the non-UK control test in relation to a chargeable transaction carried out on 1 February 2025. It is therefore not a relevant participator of Amoury Sucre Ltd in relation to the transaction.

We need to determine the position for the remaining participators of Amoury Sucre Ltd:

  • Tawanda PLC
Is Tawanda PLC a close company under paragraph 8?

Tawanda PLC is a UK incorporated company that was listed on the London Stock Exchange in October 2024. All shares in the company have voting rights attached. The position on 1 February 2025, is that Imogen holds 60% of the share capital, and the remaining 40% is beneficially held by members of the public (as defined by section 447 CTA 2010), with no one person holding more than 5%.

Under the usual close company rules in Chapter 2, Part 10 CTA 2010, Tawanda PLC would not be treated as a close company by virtue of section 446. However, paragraph 8(3) specifically provides that such quoted companies are considered to be close for the purposes of the surcharge. Hence, Tawanda PLC is a close company under paragraph 8, as it is UK resident for the purposes of Corporation Tax and is not an excluded company under paragraph 11.

Non-UK control test

Imogen holds 60% of the share capital and controls the company. Between 2 February 2024 and 1 February 2025, Imogen spent 77 days in the UK. She is therefore non-resident in relation to the transaction. Hence, Tawanda PLC meets the non-UK control test and is a relevant participator of Amoury Sucre Ltd.

  • Sipsey Ltd
Is Sipsey Ltd a close company under paragraph 8?

Ruth and Buddy are married and live together, and each own 50% of the share capital in Sipsey Ltd. The company is under the control of fewer than 5 participators and is therefore a close company. Sipsey Ltd is UK resident for the purposes of Corporation Tax and is not an excluded company under paragraph 11.

Non-UK control test

Between 2 February 2024 and 1 February 2025:

  • Ruth spent 190 days in the UK. She is therefore UK resident in relation to the transaction; and
  • Buddy spent 87 days in the UK. He is therefore non-resident in relation to the transaction.

As Ruth and Buddy are spouses, they are associates of each other. Under the usual close company rules at section 451(4)(c) CTA 2010, Ruth’s rights and powers would be attributable to Buddy, making Sipsey Ltd under the control of a non-resident participator. However, under paragraph 10(3), Ruth’s rights and powers may not be attributed to Buddy for the purposes of the non-UK control test. Hence, Sipsey Ltd does not meet the non-UK control test and is not a relevant participator of Amoury Sucre Ltd.

As the only relevant participator of Amoury Sucre Ltd is Tawanda PLC, and Tawanda PLC does not control the company by itself, Amoury Sucre Ltd does not meet the non-UK control test and therefore the purchase is not liable to the surcharge.

Example 4

Gemini Kai Ltd is a UK resident company for the purposes of Corporation Tax. It is not an excluded company under paragraph 11. On 25 July 2023, Gemini Kai Ltd purchases a freehold residential property in England for £2.2m.

To determine whether Gemini Kai Ltd is non-resident in relation to this transaction, we need to consider whether the second condition set out at paragraph 7(3) applies.

Is Gemini Kai Ltd a close company under paragraph 8?

The share capital of Gemini Kai Ltd is held as follows:

  • 60% - Fauline AG
  • Vanchure Ltd; and

Gemini Kai Ltd is therefore a close company as it is under the control of a single participator.

Non-UK control test
  • Fauline AG
Is Fauline AG a relevant participator under Paragraph 9(3)?

Fauline AG is a German public company listed on the Frankfurt Stock Exchange in 2005. It is resident in Germany for tax and not subject to Corporation Tax in the UK. Under the first condition at paragraph 7(2), the company is not UK resident for SDLT, and as it is not a general partner in a partnership, it is a relevant participator.

Is the non-UK control test met?

Fauline AG holds 60% of the shares in Gemini Kai Ltd. As Gemini Kai Ltd is under the control of Fauline AG as a relevant participator, Gemini Kai Ltd meets the non-UK control test and its purchase is liable to the surcharge.