Stamp Duty Land Tax and LLC considerations for US buyers

SDLT: in brief

The standard rate of SDLT for residential property is currently up to 12 per cent. Rates are banded, with the top rate being paid on the portion of the purchase price in excess of £1.5 million.

However, if the purchaser (or their spouse or minor child) owns another residential property anywhere in the world, then there is a 3 per cent surcharge on top of the standard rates, bringing the top rate to 15 per cent.

This 3 per cent surcharge will be refunded if the new UK property is bought as a replacement for the purchaser’s previous only or main residence (which they sell within three years of purchasing the new UK property).

The rates of SDLT climb again if the purchaser is non-resident. A person will be non-resident for SDLT purposes if, broadly, they have spent fewer than 183 days in the UK in the 12 months either side of the purchase of the UK property. A non-resident purchaser is subject to an additional 2 per cent surcharge, increasing the top rate of SDLT to 17 per cent if they own another property.

Matters are worse still if the purchaser is a corporate entity, for which the rate of SDLT is usually a flat 15 per cent, or 17 per cent if the company is non-resident (so all of the purchase price is taxed at 15 per cent or 17 per cent, rather than only the portion above £1.5 million).

There is an exemption available from the flat rate if the property is bought for the purposes of a property letting or development business, in which case the banded standard rates above (including the 3 per cent surcharge) will appl, representing a modest SDLT saving.

LLC considerations

Many US clients will have interests in one or more limited liability corporations (LLCs). In the US, LLCs typically offer the benefits of limited liability combined with tax transparency (so that the members are taxed directly on their share of the underlying income and gains of the LLC, as if it were a partnership in UK terms).

However, the same is not true in the UK. HMRC treats most LLCs as companies and regards them as ‘opaque’ for UK tax purposes and taxable in their own right. This can pose a problem for UK resident US citizens if it causes a mismatch in the source of income derived from the LLC for the purpose of the double taxation agreements between the US and UK, leading to potential double taxation.

In addition a US LLC is not recommended as a vehicle for purchasing UK residential property for occupation by the owner. Doing so will trigger SDLT at the flat rate for corporate purchasers of 15 per cent (17 per cent if the LLC is not UK resident) and will, in addition, incur annual ATED charges if the property is occupied by a member of the LLC. Since 2017, ownership through a non-UK company no longer shields the property from inheritance tax.

On the flip side, HMRC’s position on LLCs means that property already held within an LLC should not be taken into account in assessing whether the purchaser is subject to the 3 per cent surcharge.

In certain circumstances it may be possible for a US client to transfer their other (US) property into an LLC prior to purchasing a UK property to achieve the same result. However, it will be essential to take careful UK tax advice to ensure that widely drafted SDLT anti-avoidance provisions are safely navigated. Local tax advice in the US (and any other relevant jurisdictions) will also be essential in case there are adverse non-UK tax consequences.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, February 2024