Jump to content
House Price Crash Forum
cashinmattress

Wealthy Buyers Exploit Stamp Duty Loophole

Recommended Posts

Guardian

Buyers of some of Britain's most expensive homes may avoid paying the new 5% rate of stamp duty on £1m-plus properties thanks to a tax loophole allowing houses and flats to be registered in the names of companies rather than individuals.

The rise – from 4% to 5% – comes into effect in April and means that duty on a home costing, say, £1.5m will rise from £60,000 to £75,000. Duty on a £10m estate rises from £400,000 to £500,000. Some buyers are trying to rush purchases through before the increase is implemented, but the richest buyers have discovered a legal route that almost avoids the tax altogether.

This is done by setting up an offshore company – typically registered in a tax haven such as the British Virgin Islands or Panama – specifically to buy a property. The company may cost tens of thousands to set up, but this route is already taken by rich overseas purchasers of property in the UK, and by wealthy Britons based abroad.

The company buys the home in its name, initially paying the full stamp duty. But when the owner decides to sell the property on, he sells shares in the company rather than the property itself. The transaction is not logged with the Land Registry, enabling the new buyer to take over the property stamp-duty-free: the company shares attract stamp duty at 0.5%, or sometimes less, instead of the 5% on conventional sales. Such buyers may also pay much less inheritance and capital gains tax on the house.

"The seller could explain to the buyer the huge saving on stamp duty from designating shares rather than property, and they could agree to split that saving," says Hamilton Forrest, a tax expert at Rosenblatt Solicitors. "It's entirely legal and could be a substantial sum for each of them."

The Candy Brothers – whose new development in London, One Hyde Park, includes flats priced from £6.5m to £140m – are reported to have written to potential buyers explaining the benefits of "offshore vehicles".

Estate agents in central London, where many flats and houses have seven-figure price tags, say that about 20% to 25% of deals are now done through these offshore vehicles. Agents in the most desirable areas such as Mayfair, Kensington and Holland Park say well over half of their clients are from overseas, the majority purchasing in this way.

Now agents in Cheshire and on the south coast say they, too, are seeing buyers who use these companies. Specialist lenders, dealing only in mortgages of £1m or more, say they will arrange loans to offshore firms as well as to private individuals.

But anyone buying a home this way runs long-term risks, say experts. "You don't know if the company whose shares you buy has other liabilities as well as the property," says Hamilton Forrest. "Debtors and problems could come out of the woodwork."

"Offshore purchasing is perfect for an overseas investor who buys an expensive apartment, lets it out and never lives in it. But for anyone else, it's a ticking time-bomb," says David Kilshaw of tax consultancy KPMG.

"What if Revenue & Customs choose to charge tax on any appreciation on the property? What if there's a change in the law about the tax status of these offshore vehicles, as there has been for overseas non-doms living in Britain? This could be a complete nightmare."

Prices of top-end homes have been largely unaffected by the downturn, as their buyers are likely to be less vulnerable to mortgage restrictions and wider economic worries.

Now it seems that they may have tax benefits, too – if they think the risk is worth it.

All you little people out there support the country whilst the rich few just keep raiding the pot.

Nothing will change of course, daylight robbery by those lucky few has such a long, noble history in the UK.

Funny that.

Share this post


Link to post
Share on other sites

It'll only get closed if there is a way for the normal public to offshore housebuying. It would be easy for a company to offer this as a service using off the shelf companies in a tax haven; but hey, only the Rich can cheat.

Share this post


Link to post
Share on other sites

Some buyers are trying to rush purchases through before the increase is implemented, but the richest buyers have discovered a legal route that almost avoids the tax altogether.

Interesting to see what impact this has on the various indices (especially the ones that aren't mix-adjusted) when the increase kicks in.

Share this post


Link to post
Share on other sites

"but hey, only the Rich can cheat,"

Au contraire. Benefits cheats cheat and they're poor.

The poor cheat all the time.

As do the rich.

It is the middle 2/3 of society who get phucked to keep the extremes, who actually control which tribalists gain political power, happy.

Share this post


Link to post
Share on other sites

its not really a loophole for the rich.

anyone can setup a company to buy a house.

you can setup a company calles HPC ltd for £30, and use it to buy a house.

problems are, you need to pay capital gains tax on the asset increases - theres no first residence tax exemption.

you need to sell shares in the company rather than the house itself, which will cut down your market of buyers who dont want to get invloved in this type of thing.

you need to file annual accounts for your company.

Edited by mfp123

Share this post


Link to post
Share on other sites

its not really a loophole for the rich.

anyone can setup a company to buy a house.

you can setup a company calles HPC ltd for £30, and use it to buy a house.

problems are, you need to pay capital gains tax on the asset increases - theres no first residence tax exemption.

you need to sell shares in the company rather than the house itself, which will cut down your market of buyers who dont want to get invloved in this type of thing.

you need to file annual accounts for your company.

Please don't try to derail this thread with facts or dispassionate accurate information. It's a dirty tax loophole for banksters and the rich who cheat and steal at every turn. They get everything, "we" get nothing, it's all their fault and there's nothing we can do short of revolution. Clear?

Share this post


Link to post
Share on other sites

Please don't try to derail this thread with facts or dispassionate accurate information. It's a dirty tax loophole for banksters and the rich who cheat and steal at every turn. They get everything, "we" get nothing, it's all their fault and there's nothing we can do short of revolution. Clear?

Actually, this is true and the information is accuarate. A friend of mine who is in the market for a £1m+ house was telling me about this. His solicitor has offered to set this up (quite expensive, something like 40% of the stamp duty equivalent as an indemnity). Apparently he can transfer the house out of the company and to himself without additional charge once 6 months have expired - something about a loophole in the stamp duty rules that means they can't collect the duty if more than 6 months have ellapsed.

Share this post


Link to post
Share on other sites

Actually, this is true and the information is accuarate. A friend of mine who is in the market for a £1m+ house was telling me about this. His solicitor has offered to set this up (quite expensive, something like 40% of the stamp duty equivalent as an indemnity). Apparently he can transfer the house out of the company and to himself without additional charge once 6 months have expired - something about a loophole in the stamp duty rules that means they can't collect the duty if more than 6 months have ellapsed.

Fiendishly clever... but would the transfer be for a nominal sum? Would the company have to put up the money, or the individual (I guess they would have to be rich as this could not be done in conjunction with a mortgage).

Share this post


Link to post
Share on other sites

Actually, this is true and the information is accuarate. A friend of mine who is in the market for a £1m+ house was telling me about this. His solicitor has offered to set this up (quite expensive, something like 40% of the stamp duty equivalent as an indemnity). Apparently he can transfer the house out of the company and to himself without additional charge once 6 months have expired - something about a loophole in the stamp duty rules that means they can't collect the duty if more than 6 months have ellapsed.

Sounds particularly pointless, given that stamp duty was paid with the original purchase.

I'm just wondering where the benefit is in offshoring this. A UK company can own a house, and its shares can be sold on the same terms. Guess it must be down to tax on rental income you'd pay your company.

Share this post


Link to post
Share on other sites

if someones that bothered about saving 4% stamp duty, offer 4% less for the property!

do you really think a buyer wants to jump through hoops in buying their house through an offshore company just to split the 4% stamp duty between the buyer and seller, i.e save 2% each?

Share this post


Link to post
Share on other sites

Surely we can all agree that paying some hateful bureaucrat £50,000+ for the basic right to move home is an outrage?

Thank God there are ways around this evil situation.

+1

I will be using one of these schemes when I eventually buy.... Dont hate the player, hate the game...

T

Share this post


Link to post
Share on other sites

if someones that bothered about saving 4% stamp duty, offer 4% less for the property!

do you really think a buyer wants to jump through hoops in buying their house through an offshore company just to split the 4% stamp duty between the buyer and seller, i.e save 2% each?

Yes. I'd be happy to do that if it could be done without incurring bigger tax liabilities as a side-effect.

But I suspect this story may be a little economical with the truth. Can't see how you'd avoid paying rent, meaning taxable profit for the company and then tax on income being taken out of it, unless you were non-resident. So making the stamp duty wheeze work in your favour would imply both that you are non-resident, and that you can find a non-resident buyer. Rather a limited market, perhaps.

Share this post


Link to post
Share on other sites

Guardian

All you little people out there support the country whilst the rich few just keep raiding the pot.

Nothing will change of course, daylight robbery by those lucky few has such a long, noble history in the UK.

Funny that.

That one is so-o 2010.

Maybe they should try the islamic mortgage loophole instead. The scheme uses a similar structure to that of an Islamic mortgage and involves the use of an offshore protected cell company which purchases the freehold title and then grants you a 999 year leasehold title. The leaseholder would have an option within the lease to purchase the freehold back at any time for £1. The Guernsey PCC company only gets an exemption from Stamp Duty if it has passed the requirements for alternative property finance. Basically these are that it must hold a consumer credit licence (can get one forGBP800 or so), purchases interest in for a leaseback and gives theright to the individual to repurchase the freehold during the tenure. Originally designed to stop muslims paying stamp duty twice on shariah mortgages, now yours, for the price of a PCC and CCL.

Share this post


Link to post
Share on other sites

Yes. I'd be happy to do that if it could be done without incurring bigger tax liabilities as a side-effect.

But I suspect this story may be a little economical with the truth. Can't see how you'd avoid paying rent, meaning taxable profit for the company and then tax on income being taken out of it, unless you were non-resident. So making the stamp duty wheeze work in your favour would imply both that you are non-resident, and that you can find a non-resident buyer. Rather a limited market, perhaps.

really?

so if you were buying a £1million house youd go through all this instead of just saying i want 2% off your asking price please...

Share this post


Link to post
Share on other sites

really?

so if you were buying a £1million house youd go through all this instead of just saying i want 2% off your asking price please...

No, as well as saying I want 10-15% off asking. 20k is still 20k even if you can afford a million pound house. School fees to pay, luxury cars to service.

Share this post


Link to post
Share on other sites

Actually, this is true and the information is accuarate. A friend of mine who is in the market for a £1m+ house was telling me about this. His solicitor has offered to set this up (quite expensive, something like 40% of the stamp duty equivalent as an indemnity). Apparently he can transfer the house out of the company and to himself without additional charge once 6 months have expired - something about a loophole in the stamp duty rules that means they can't collect the duty if more than 6 months have ellapsed.

My previous accountant was touting something like this to me as a great idea. It just smells dirty even from this distance.

It sounds wrong. It is wrong.

I assume the properties don't show up in the land reg sale prices either?

Share this post


Link to post
Share on other sites

"but hey, only the Rich can cheat,"

Au contraire. Benefits cheats cheat and they're poor.

The poor cheat all the time.

most on benefits are not cheats. most rich have these freeby cheats which are legal but obviously imorral when you take into account that they are not avaliable for the other 99% of the population. Also applies to VAT on things like yachts etc, I used to sail with someone who had one for his film hire set business (his sister had a big job at a big TV station and funneled most of their needs his way, including a one off hire of his yacht to make it legitimate).

if someones that bothered about saving 4% stamp duty, offer 4% less for the property!

do you really think a buyer wants to jump through hoops in buying their house through an offshore company just to split the 4% stamp duty between the buyer and seller, i.e save 2% each?

Also applies to CGT which could be much bigger at this end of town.

This scam has been there for ever and has been mentioned here more than once before. Too many core Tories benefiting for it to change.

Edited by steve99

Share this post


Link to post
Share on other sites

Sounds particularly pointless, given that stamp duty was paid with the original purchase.

I'm just wondering where the benefit is in offshoring this. A UK company can own a house, and its shares can be sold on the same terms. Guess it must be down to tax on rental income you'd pay your company.

Perhaps I wasn't clear - there is no stamp duty paid. The 40% equivalent of stamp duty is effectively the solicitor's indemnity - ie. danger money. The message seemed to be "we'll set up the off-shore company and no stamp duty will be paid and we'll indemnify you for any future duty liability. After 6 months we'll transfer the property to you and no stamp duty will be due as the 6 months will have passed. For this "service", we want 40% of what you would have paid in stamp duty, just in case they come after us and we have to cough up the full duty after all."

That's how I understood it from my pal - all rather dodgy but it seems to be quite widespread.

Share this post


Link to post
Share on other sites

its not really a loophole for the rich.

Nope, it's a loophole for rich FOREIGNERS.

It only works if you can avoid paying CGT on the gain by not being resident in the UK for CGT purposes.

It (by definition) doesn’t work for poor foreigners because no-one who can afford a house that they rarely live in could reasonably be considered poor.

tim

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 277 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.