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Stamp Duty Mitigation
Stamp duty is the tax that homebuyers are legally required to pay when purchasing a property, the amount of which is dependent on the value of property. The thresholds for how much you will liable for are as follows:
|Purchase Price||Stamp Duty Payable (%)|
|Up to £125,000||Zero|
|£125,001 to £250,000||1%|
|£250,001 to £500,000||3%|
|£500,001 to £1,000,000||4%|
|£1,000,001 to £2,000,000||5%|
|£2,000,001 or more||7%|
With the multitude of costs associated with moving house, it is unsurprising that the prospect of removing this cost is an attractive one.
Stamp Duty Mitigation is the process of reducing or avoiding paying Stamp Duty – it is therefore basically a form of tax avoidance. There are a number of ways in which buyers have avoided paying tax, one of the most common of which being over-valuing the chattels on the fixtures and fittings form. This is discussed in more detail in Chattels and Fixtures but suffice to say, HMRC are likely to investigate such over-valuations. Other methods of avoiding tax can get fairly complex but can include buying as a company and then passing the property straight on or transferring of the property in stages so as to reduce the tax liability.
There is no doubting that there are many homebuyers that have benefitted from stamp duty mitigation over the last few years and unsurprisingly the government have been busily closing loopholes in a bid to reduce the millions of tax that has been left unpaid. With recent developments in mind, the chances of such a scheme working are significantly less than they may have once been.
Most lawyers offering stamp duty mitigation will charge high fees and take a share of any saving made. Although some will offer to only charge fees if the scheme is successful, it will typically be deemed to have been a success if there are no queries from HMRC within 9 months of completion. This is dangerous as the window for challenge will remain open for a further 6 years. If you are found to have been in breach of the law, HMRC can demand the full stamp duty amount, interest and possible penalties (in addition to the expensive fees already paid) as well as having the opportunity to investigate your full tax affairs.
Following a recent major legal case, new rules have been announced by HMRC whereby anyone using or promoting a mitigation scheme will have to disclose it at the time.
In the case, a company bought a property through a newly formed company which then immediately distributed it as a ‘dividend’ to the parent company. By this method, the parent company did not pay any money for the property and therefore did not pay stamp duty – however it was found that by indirectly providing the money, they were indeed liable. This led HMRC’s director general of business tax Jim Harra to warn that the case sent ‘a clear message to tax avoiders that we will challenge avoidance relentlessly’ and that ‘people who are tempted by tax advisors to enter into avoidance schemes should think twice and not be driven by greed into signing up for schemes that are just too good to be true.’
In-Deed’s solicitors, along with most reputable lawyers in the UK legal market, do not and have no plans to offer stamp duty mitigation. We do however strive to offer competitively priced conveyancing with a high quality service. If you would like further information about the conveyancing process or to know more about Stamp Duty, do give one of our advisors a ring on 0330 100 2322 and we’ll be delighted to help. Alternatively, you can get an instant online conveyancing quote.