Sunday, April 25, 2010

How to avoid stamp duty on expensive property

How the law works for the well-off

Stamp duty costs 4% on a property costing more than £500,000. But stamp duty on the sale of shares is payable at 0.5%. So stamp duty is saved on the sale of very expensive properties by transferring their ownership into limited companies and by then selling the shares in the company that owns the property. This scheme is widely used for expensive houses and commercial property. An old [2002] government consultation paper proposed reforms to make stamp duty payable on the value of underlying property in companies used for these purposes. But it is difficult to see how it can be policed for offshore companies owned by trusts, where the trust beneficiaries are unknown to the Inland Revenue. -- [Apologies for the old article, but still relevant today. See first comment below.]

Posted by drewster @ 05:32 PM (21027 views)
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12 thoughts on “How to avoid stamp duty on expensive property

  • I was only made aware of this because I was reading the party manifestos and came across this paragraph buried in the last page of the Lib Dem’s tax plans:

    Lib Dem’s Tax Plans Briefing Document

    Avoidance measures – Stamp duty

    Stamp Duty Land Tax (SDLT) can currently be avoided, if a company or an individual sets up an offshore business structure so that the property does not appear to be sold by a UK taxable person. In addition Stamp Duty can be reduced from the standard rate to just 0.5% if the property is held by a UK company and the company is sold. To stop this we would bring forward legislation which looks through any structured transaction so that where there is any beneficial UK ownership, the property would fall liable to SDLT and the duty cannot be avoided.

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  • Stamp duty is payable on the purchase not the sale of a property … even if an offshore company buys it, someone still has to pay the stamp duty at the outset …

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  • the number cruncher says:

    I am sorry (and Glad as it was for charity) that I used this method of Stamp duty tax avoidance myself as a charity trustee in purchasing a Million pound property a few years ago. The vendor insisted we do this and to pay them off in instalments to avoid CGT to themselves. This was part of a much larger property sale of about 5 million. They paid legal fees of about £200,000 so they could avoid paying as much tax as possible.

    The vendor was in the business of tax avoidance, or wealth management, as he called it. Bloody parasite who should be against a wall and a bullet through the back of the neck in my opinion

    Its a sick world in which a solicitor gets 200k reward for robbing the tax payer of tax the rest of us would have to pay, and our politicians seem powerless to stop the loopholes as the vested interests are just to politically powerful.

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  • Just goes to show that SDLT is a flawed tax. Better to replace it with LVT. But we all knew that anyway…

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  • Thats a smart way to save money, while I dont have millions to invest in property if I had I would have no issue in saving every penny I could and lie up in Spain and enjoy the high life. Fair play to them I say.

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  • markj69 str05 says:

    @nc 2… ‘Its a sick world in which a solicitor gets 200k reward for robbing the tax payer of tax the rest of us would have to pay, and our politicians seem powerless to stop the loopholes as the vested interests are just to politically powerful.’

    Opportunist will find loop-holes. And don’t think the poiticians aren’t aware of them, and can not do anything about them. It’s not in their interest. Vested interest. Anyone making money this route should be investigated with all other tax-dodger.

    The system is failing – Those responsible for the system should be investigated more than others.

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  • Darren Ferneyhough says:

    It’s hardly sick to use whatever legal means you have at your disposal to ensure you pay the lowest amount of tax that you can – what is sick is to voluntarily (whether through ignorance or apathy) pay more tax than you need to.

    In fact, it’s accepted as the very right of every taxpayer under UK law following the case of IRC vs Duke of Westminster (1936) 19 TC 490 in which Lord Tomlin presiding concluded “every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be.”

    To suggest that it is sick for solicitors (or accountants for that matter) to receive fees for providing their professional services to achieve this for clients who themselves do not have the required knowledge or expertise to do so on their own is frankly laughable.

    What is interesting (although some might say sick), is that The Labour Party – whose government created SDLT with the professional services of Reg Nock QC (who rumour has it charges £3,000 per hour), used one of the very methods described on this page to legally reduce the SDLT payable on the purchase of their London HQ by £210,000 compared to what it would otherwise be.

    This is why (aside from the fees) I choose to help my clients to realise their entitlement to reduce their tax liabilities as Lord Tomlin galvanised through case law over 70 years ago.

    Having said that, I would not advocate using schemes which involve offshore companies or tax havens etc, as these can often be firmly in the ‘dodgy’ camp and likely to trigger significant interest from HMRC and be ultimately detrimental to all involved – all of the schemes we use are onshore, legal and pre-approved by HMRC with an approval reference number.

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  • Have been approached to enter a tax scheme whereby we put our house into a company… details seem sketchy which makes us anxious. If we use a scheme that is approved by HMRC, eg. we disclose, does that mean the HMRC have a ‘flag’ by our name and will be watching us in the future years, regardless of having disclosed? We’d appreciate any advice… thanks

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  • @Darren Ferenyhough – “all of the schemes we use are onshore, legal and pre-approved by HMRC with an approval reference number.”

    HMRC are pre approving your schemes are they? – then you are a wonderous adviser indeed. Presumably you have disclosed your schemes and have a scheme reference number but that is hardly approval!

    In all my years as a specialist in Stamp Taxes and SDLT I have never (perhaps with the exception of Prudential planning and a groan but acceptance with what we were doing before they included Partnerships in the scope of SDLT – I have never seen HMRC say they approve any planning pertaining to SDLT even if they reluctantly allow a relief for it. In fact they are mostly enraged by it.

    I expect I will be speaking to David James at SCO ( HMRC – Stamp taxes) next week. I’ll mention your name. If indeed your planning is approved by HMRC he’ll be able to share details!

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  • i am a none domicile expat, do i need to pay stamp duty i just purchased a house in london freinds have said i do not pay ,however my solicitor does not know this and he said i have to pay , does anyone know if this is correct

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  • It’s a stupid tax – why tax people based on how often they move house? It makes no sense. I’m surprised every house isn’t owned by a company to avoid it.

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  • Edward Rountree says:

    I agree with doing something about the parasites who avoid their tax obligations but I also think the current stamp duty on house purchases is far too high. I should not apply in centers like London wher one can hardly buy a shoe box of a property to house a family or under a million. And what happened to the sliding scale when it reaches that mark. So some pay no or little duty then as I stated when you buy a VERY average house in London using money you have earned and aged sometimes 50% to the tax man already you are asked for a whopping 7% on the WHOLE amount then to add insult you are hit with capital gains tax when exiting. That’s just robbery!

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