Stamp duty avoidance schemes overview
Stamp duty avoidance schemes have been around for some time now but in the past few years have been advertised to people who have houses worth £350,000. A property worth this amount falls into the 3% rate, meaning the homeowner would be liable for a tax bill of £10,500.
A stamp duty avoidance scheme can be executed in two ways. The first is to set up a company and then purchase property through the company; the property is then distributed as a dividend. As the property didn’t cost the owner anything, it can be argued that it is not liable for stamp duty.
The second focuses on couples who purchase a property, but before completion, the husband pays off 85% of the property price. He can then transfer the property into his wife’s name using an avoidance scheme and she will pay the remaining 15%. As the husband’s contribution is under 90% of the property price, he is not liable for stamp duty. As the wife has only contributed 15% to the property purchase, she will only pay stamp duty on the amount she paid.
HMRC are fully aware of the schemes used and continue to target those who utilise them.
HMRC have identified 1,200 UK homebuyers that have avoided paying the right amount of stamp duty leaving the Revenue with £35m in uncollected tax…
HM Revenue and Customs (HMRC) have announced that they will be looking to investigate 1,200 people who have used a stamp duty tax avoidance schemes that means they have not paid the right amount of tax.
HMRC discovered the data earlier this year when a data matching exercise was run to compare HMRC stamp duty returns with data held by the Land Registry.
The findings revealed that stamp duty schemes have allowed around 1,200 people to avoid paying the tax which is thought to amount to about £35m.
A spokesman for HMRC said:
“We identified 1200 cases where marketed avoidance schemes have been employed to artificially reduce stamp duty land tax due on property transactions.
“Left unchallenged these schemes would potentially deny the country some £35m in vital tax revenues whilst giving those who used these schemes an unfair financial advantage over the majority or property purchasers who play by the rules.”
There are a number of websites which are offering tips to homebuyers, who for a fee will disclose supposed tax loopholes in stamp duty law.
Legally, homebuyers must pay stamp duty land tax that costs between 1% – 5% of the purchased house price.
Stamp duty tax is liable when purchasing a property above £125,000. For houses that cost less the stamp duty does not apply.
Websites that offer stamp duty schemes claim to homebuyers that stamp duty tax specialists will annul their requirement to pay the stamp duty. This is obviously done for a small fee which usually totals around half the amount that the stamp duty tax should have cost.
Stamp Duty Schemes – Popular Methods
It is thought that stamp duty schemes on the web have become popular due to the recession and mortgage lender rates currently favouring higher deposits.
Stamp duty can be avoided through one of two ways:
- A limited liability company is set up which will buy the property, selling it back to the individual straight away. By setting up a middle corporation between the vendor and the buyer, similar to corporation tax, stamp duty is not required to be paid. Or;
- Fittings and fixtures are sold separately which lowers the cost of the property bought to below the £125,000 threshold.
Although the Revenue are yet to close down stamp duty loopholes, HMRC have said:
“The schemes rely on an interpretation of law that produces an outcome different from that envisaged when the law was enacted, and that HMRC does not accept.”
HMRC has also announced that they are hoping to challenge stamp duty schemes in the courts and letters have already been issued to 1,200 already found to be using these schemes:
“We wrote to the 1200 people who have taken up these avoidance products setting out the correct tax position, ensuring a fair and level playing field for all property purchasers,” an HMRC spokesman added.
Earlier this year the stamp duty rate increased to 5% for properties valued over £1m. This is thought to be another contributing factor to the increased popularity of stamp duty schemes.
Kevin Kinsella Jnr, of KinsellaTax, said:
“My son who recently bought his house was offered a similar type of scheme to reduce the stamp duty, but declined to use it.
“The sums allegedly saved were small compared to the stress caused by an HMRC investigation. Be careful if it looks too good to be true, it probably is.”
Have you used a stamp duty avoidance scheme?
Are you one of 1,200 people to receive a letter from HMRC challenging your tax return?
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