Why avoid­ing stamp duty may prove not worth the risk

Yorkshire Post - Property - - PROPERTY -

di­vided be­tween those who think that min­imis­ing the tax they pay is fair game, and those who think that such be­hav­iour is “morally re­pug­nant”, to quote the Chan­cel­lor of the Ex­che­quer.

One tax that seems to cause a lot of an­noy­ance is Stamp Duty Land Tax, paid when buy­ing a house. Ab­bre­vi­ated to SDLT, this tax ap­plies to the pur­chase price of the house, with the rate ris­ing with the value of the prop­erty, as fol­lows: Up to £125,000 you pay noth­ing; £125,001 to £250,000 is 1%; £250,001 to £500,000 is 3%; £500,001 to £1,000,000 is 4%; £1,000,001 to £2,000,000 is 5% and £2,000,001 and above is 7%.

The rate ap­plies to the whole price. So if you buy a house for £249,990, you pay SDLT at 1%, coming to £2,499. How­ever, if the price is £250,010, the SDLT is at 3%, cost­ing you £7,500. So a £20 higher price re­sults in £5,000 more tax. Not sur­pris­ingly, the av­er­age UK house price in the quar­ter to 30 Septem­ber 2012 was £249,958

There is there­fore a temp­ta­tion for some to try to get the pur­chase price into a lower price bracket, or even to avoid the tax al­to­gether if pos­si­ble, and there are a few op­tions that can be con­sid­ered if you want to min­mise the cost.

You may find a house on the mar­ket at slightly over one of th­ese thresh­olds. One pop­u­lar tech­nique for try­ing to get into a lower price bracket is to at­tribute part of the price to items such as fur­nish­ings that are not built into the prop­erty. If suc­cess­ful, that means that SDLT can be re­duced, be­cause it isn’t payable on mov­able items.

One house-buyer who tried this failed when the mat­ter came to the Court (and yes, HM Rev­enue & Cus­toms will go to court over this trans­gres­sion). The to­tal price was £258,000, and the SDLT was paid on the ba­sis that £8,000 re­lated not to the house but to “chat­tels”. Af­ter some ar­gu­ment, this was ac­cepted apart from £800 worth of built-in cup­boards in the garage. The re­sult was that for that £800, the SDLT went up from a hoped-for £2,500 to £7,524. So get­ting your facts right and close at­ten­tion to de­tail is clearly vi­tal here.

If you want to avoid SDLT al­to­gether, you will be look­ing at a more ag­gres­sive scheme.

Ex­am­ples in­clude us­ing a non-UK part­ner­ship struc­ture. The seller has to set this up, but if it works the re­sult is that the buyer doesn’t buy the prop­erty it­self, but buys a stake in the part­ner­ship. That car­ries no SDLT at all. There are other schemes in­volv­ing trusts, though th­ese are a very com­plex area in them­selves

Do th­ese schemes work? Lots of peo­ple think they do, though you won’t see HMRC agree­ing with that. They can charge penal­ties on top of the SDLT if the scheme doesn’t work so you must con­sider this risk.

You should also be aware that the So­lic­i­tors Reg­u­la­tion Author­ity has come out against them as well, warn­ing so­lic­i­tors that they could face dis­ci­plinary ac­tion if they pro­mote or fa­cil­i­tate SDLT schemes. If you are tempted to use such a scheme, make sure you com­pletely un­der­stand the risks and that and you choose ad­vis­ers care­fully. You need to have to­tal con­fi­dence in them. Fi­nally, note that the Fi­nance Act 2013 will bring in a Gen­eral Anti-Abuse Rule that is meant to stop a lot of tax schemes from work­ing, even if there isn’t a spe­cific rule in the tax law ban­ning the scheme in ques­tion.

So it really is a case of buyer be­ware.

Adrian Wid­dow­son is a tax con­sul­tant at Gar­butt and El­liott, which has of­fices in Leeds and York, www.gar­butt-el­liott. co.uk. For more de­tails on Stamp Duty Land Tax visit www. hmrc.gov.uk.

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