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The following article endeavours to present the facts in an objective and impartial manner. and it is hoped that it will better inforrm home buyers of the isues and very considerable risks involved in Stamp Duty Mitigation Schemes.
It should be noted that this article outlines the position of the vast majority of Conveyancing Solicitors and, tempting as it may be to disregard such advice, to do so would be akin to disregarding any other professional body’s opinion. Fridaysmove regularly advise clients considering Stamp Duty Mitigation - Call us now and we would be happy to answer any questions you have on 033 0660 0286.
With the SDLT charge now ranging from 1%-5% of the purchase price for properties over £125,000, it is easy to see why purchasers could be tempted to explore ways to reduce or avoid paying this tax.
Stamp Duty Mitigation means Stamp Duty Avoidance. Essentially this is tax avoidance. For years buyers have sought to avoid, reduce or mitigate SDLT through a variety of methods.
A relatively common way in which purchasers may seek to reduce their SDLT payment is by paying for fixtures and fittings separately, thereby reducing the purchase price of the property itself and consequently the amount of tax payable. If, however, HMRC decides to review the transaction and finds that inflated values have been attributed to the fixtures and fittings, it may be viewed as a fraudulent attempt to avoid paying tax.
It is therefore essential that actual values are used. We would deter clients from overstating the price payable for fixtures and fittings, as the risks are high, particularly in light of the relatively small tax saving that might be achieved.
There are other more complex methods in which specialist companies may claim that they can reduce your SDLT burden. (Simply type ‘Stamp Duty Mitigation’ into a search engine and you will be confronted with an array of websites for companies making impressive claims to reduce your Stamp Duty Land Tax liability.)
For example, these might involve the insertion of various artificial steps in to the transaction, such as the transferring of property to specially created companies in order of benefit from lower tax rates, or the inclusion of sub-sales, whereby the property is transferred from the seller to the buyer in stages in attempt to avoid taxation of the full purchase price.
Specifically, by creating a nominee company to stand between the vendor and the purchaser, the company initially pays only 85% of the purchase price – as legislation stipulates that stamp duty is only chargeable on transfers of land “substantially performed”. The company then transfers the contract to the real purchaser, at which point the remaining 15% is paid to complete the purchase, which is subject to stamp duty.
Getting exact details on individual schemes can prove difficult as accountants and Conveyancing Solicitors that get involved in Stamp Duty Mitigation are usually reluctant to discuss the mechanics. In fact, home buyers are typically asked to sign a 'Confidentiality Clause' or 'Non Disclosure Agreement' before the workings of the schemes are revealed. Perhaps these clauses help explain why accounts of failed schemes are rarely reported?
Increasingly, legislation is being introduced to combat such schemes, and the Revenue has announced its determination to ‘relentlessly pursue’ those who deliberately bend or break the rules.
One case involved the grant of two leases, which contained provisions included specifically with a view to mitigating stamp duty. The court found in favour of the Revenue and the full amount of tax was payable. In another case, documents had been executed abroad in an attempt to avoid stamping requirements. However, again the court found in favour of the Revenue.
Simple, the potential savings are enticing. The costs of moving seem to spiral endlessly higher and home buyers are willing to explore ways to save money more than ever.
There are certain circumstances where stamp duty is not required. At the time of writing, for example, no SDLT is due from first time buyers purchasing at or below £250,000 from 25 March 2010 up to 24 March 2012 inclusive.
Tax legislation is subject to ongoing change and the HMRC website should be consulted for up-to-date information at a http://www.hmrc.gov.uk/sdlt/intro/rates-thresholds.htm.
Always ensure you are dealing with a reputable firm of Solicitors. There is a risk that if you choose your Solicitor merely due to its claims of stamp duty mitigation success, they may not prove to be the most proficient Conveyancers, which could ultimately turn out to be very costly. Remember that all the usual risks associated with buying a property, such as bad titles, lack of planning permission or unauthorised alterations etc, still apply, and will require a competent Conveyancing Solicitor to resolve.
Given the tough economic times we are all facing, Solicitors are having to broaden their offerings to preserve incoming work volumes. Nevertheless, the majority of Conveyancing Solicitors still won’t go anywhere near Stamp Duty Mitigation.
No. Neither Fridaysmove, nor its partner firms, are prepared to handle the Conveyancing for Stamp Duty Mitigation Schemes.
We would encourage anyone considering Stamp Duty Mitigation to call us first on 033 0660 0286 and we would be happy to answer any of your questions without obloigation.