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Unexpected Tax Costs for US Secondees to the UK
Sean Randall, partner at Blick Rothenberg, explains a lesser known tax that could affect US secondees to the UK

Published on May 16, 2019

Stamp duty applies to purchases of land in England and Northern Ireland. It is enforced by registering ownership of the purchased land. It will come as a surprise to many US secondees (and possibly their employers) that merely renting a residential property for a secondment period may be taxable. Anecdotally, many are living in rented accommodation (or have done so) without realising that stamp duty is due. This was the case, for example, with a British-headquartered multinational bank over more than ten years.

It is understandable. New leases are taxed on the net present value (NPV) of the rent payable over the term of the lease. A relatively generous nil-rate band (£125,000) means that one-year leases are rarely taxed, especially outside London. The twist is this: when a lease is renewed (at least where the tenant exercises an option to renew the lease) it is treated as if the lease had grown by one year. So a one-year lease would ‘grow’ into a two-year lease on the first renewal and into a three-year lease on the second renewal, and so on. This means that the NPV of the rent payable over the extended term could tip over the nil-rate band, meaning that a stamp duty and tax would become due. As short leases are not registrable, there is no obvious link to paying the tax. For US employers that regularly second staff to the UK, failure to pay tax that was/is due will be an unwelcome surprise.

Year 1 Year 2 Year 3 Year 4
Rent £60,000 £60,000 £60,000 £60,000
Rent (+ RPI) £62,000 £62,000 £62,000
Rent (+ RPI) £64,000 £64,000
Rent (+ RPI) £66,000
NPV of Rent £60,000 £115,848 £173,573 £231,088
Tax Due Nil Nil £485 £575 (£1,060 - £485)

For example, suppose a secondee takes out a one-year lease of a London apartment for £60,000 per year (index linked for future years) and renews it three times over the course of his secondment. In the first two years no tax would be due. But in the third year £485 of tax would be due (1% of the NPV above £125,000) and in the fourth year an additional £575 would be due. Penalties for failure to notify and interest on the unpaid tax would apply if the secondee misses those tax points.

For more information, please contact Sean Randall, partner at Blick Rothenberg, on 020 7544 8719 or sean.randall@blickrothenberg.com.

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