Stamp Duty ‘dodge’ Schemes

by Mark Johnston

There is a growing belief that it is possible to avoid paying stamp duty on the purchase of a property. Dozens of websites are now offering schemes that claim to legally exploit stamp duty loopholes.

As the number of websites who offer tax avoidance tips grows, the number of home buyers who are avoiding paying stamp duty is costing the government millions a year.

These financial services companies are promising potential client’s savings of thousands of pounds in house moving costs through stamp duty land tax (SDLT) mitigation schemes.

One of the tax ‘dodges’ used in these schemes, put simply, involves transferring ownership of a property to an off-shore company so when it comes to be sold the buyer purchases the company as a whole, therefore assuming ownership of the property. As the deal is classed as a corporate transaction as opposed to a property sale there is no stamp duty obligations involved.

Another loophole these particular firms suggest to use is that of paying an artificially high price for fixtures and fittings so that the price of the property itself falls below a certain threshold.

However, many of these companies charge fees that can easily swallow up to half of the savings made from avoiding paying stamp duty.

Ian Montgomery, a solicitor at the firm Boodle Hatfield, states “it is a common misconception that it is possible to purchase a property using a company and avoid stamp duty. When a property is purchased through a company, whether based off-shore or in the UK, it pays the same rate as if it were an individual”.

These particular companies often use cold calling techniques and pop up adverts on other websites to reel in clients. The companies have claimed that the ‘taxman’ has never yet mounted a successful challenge against them and therefore they insist that they are both legal and transparent.

Her Majesty’s Revenue and Customs (HMRC) officials dispute these companies legality and have warned that unpaid stamp duty land tax (SDLT) will be recovered.

Tax litigation expert, Matheu Smith, of central London firm Keystone Law, says “the fact that there has been no successful HMRC challenge yet, well it’s the ‘yet’ that is important. There are challenges currently going through the courts that relate to tax planning schemes and HMRC may yet win”.

The government has also stated that clamping down on stamp duty avoidance will be a ‘top priority’ in Chancellor George Osborne’s budget in March 2012.

Conservative minister, David Gauke, has said 2it simply is not right that during tough times, hard working people pay their taxes in full while others avoid contributing their fair share through a range of elaborate schemes”.

The deputy Prime Minister, Nick Clegg, added “we simply say that there should be a general rule that you can not play the system2.

Her Majesty’s Revenue and Customs (HMRC) has estimated that the tax avoidance schemes have so far cost millions in lost revenue and that it is already investigating 1,200 people that it suspects of having underpaid stamp duty by a collective total of £35 million.

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