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Written by rosalind renshaw

Her Majesty’s Revenue & Customs is to mount a court challenge to stamp duty tax avoidance schemes set up for home buyers.

Central to the challenge will be the use of limited companies to buy properties, and then sell them to individuals – something which does appear to be completely legal.

Essentially, the purchaser sets up a Special Purpose Vehicle, a company or a trust with a property as its sole asset. The purchaser then buys shares in the company and is subjected to a tax rate of just 0.5%.

It will also be interesting to see which of the many companies offering stamp duty tax avoidance HMRC takes to court for a test case: a Google search yielded over 3,200 results.

The taxman’s move follows this year’s Budget when Chancellor George Osborne announced that he would be clamping down on stamp duty avoidance, whilst law firms have also warned that HMRC is on the prowl.

HMRC estimates the tax avoidance schemes have cost it millions in lost revenue. It is investigating 1,200 people it suspects of having underpaid stamp duty by a collective total of £35m, whilst it will also go after others who have avoided the tax altogether.

Dozens of websites are now offering schemes that claim to legally exploit stamp duty loopholes. The schemes frequently charge fees of around half the amount that would have been paid in tax.

Loopholes include the well-known dodge of paying an artificially high price for fixtures and fittings so that the price of the property itself falls below a certain threshold; or setting up a limited liability company to buy the property to sell back to the individual.

An HMRC spokesperson 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.”

If HMRC wins its court battle, it could find itself entangled with some seriously wealthy individuals: most of the properties so far bought at Britain’s most expensive address, One Hyde Park, are said to have been bought by offshore trusts. Even the wealthy, it seems, do not relish paying 5% stamp duty on properties over £1m.

Law firm Boodle Hatfield has also warned against avoidance schemes of Stamp Duty Land Tax (SDLT).

Ian Montgomery, a solicitor at the firm, said: “There is a growing belief that it is possible to avoid paying stamp duty on the purchase of a property or land, but unless particularly aggressive tax planning is undertaken that is just not the case.
 
“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 offshore or in the UK, it pays the same rate as if it were an individual. SDLT may be avoided by future purchasers when the company decides to sell the property.

“This is done by the owner selling shares in the company rather than the property itself, but SDLT will be paid on the initial purchase.”
 
Stamp duty on the purchase of shares stands at 0.5%, rather than the higher rate levied on property. If the company is based offshore, the purchase of shares is exempt from stamp duty entirely.
 
So, on a residential property valued at £2m, the purchaser could thus save £90,000 from purchasing the shares in a UK company holding the property as opposed to purchasing the property direct.

People who try to reduce stamp duty by paying separately for fixtures and fittings may have to prove to the taxman that what they paid for these assets did not exceed their true value.

Comments

  • icon

    Uni students... tax dodgers.

    Soap dodgers too

    • 31 October 2011 11:47 AM
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