Can I avoid paying Stamp Duty? 2024 update.
The ever-increasing costs of buying a property may tempt you to consider a Stamp Duty mitigation scheme. Before you are tempted, you should know the risks involved.
What is Stamp Duty Land Tax (SDLT)?
Stamp Duty Land Tax (SDLT) is a tax on property and land transactions. Unless you are a first-time buyer meeting certain criteria, you will be required to pay Stamp Duty if you buy a residential property for more than the current threshold in England or Northern Ireland.
In Scotland, you pay 'Land and Buildings Transaction Tax', and in Wales you pay 'Land Transaction Tax'.
What is Stamp Duty mitigation?
'Stamp Duty mitigation' is another way of saying 'Stamp Duty avoidance'.
A Stamp Duty mitigation scheme may reduce or even eliminate the Stamp Duty payable on a property purchase.
There are numerous specialist companies who operate tax-planning schemes that claim to reduce your Stamp Duty bill. These schemes are, however, considered to be high risk.
Inflating the value of fixtures and fittings
One common way to reduce Stamp Duty is to pay for the fixtures and fittings of your new home separately. This reduces the price of the property, which in turn reduces the amount of Stamp Duty you owe on it.
You should not be tempted to inflate the value of the fixtures and fittings.
HMRC will closely scrutinise property transactions where the sale price was at, or just below, the threshold of the higher Stamp Duty bracket.
If you claim that the fixtures and fittings are worth more than their true value and HMRC investigates the transaction, you could face a penalty for a fraudulent attempt to avoid tax.
Stamp Duty mitigation schemes
The methods used by Stamp Duty mitigation companies can be complex and may include:
Multiple stages transfer
This is where the property is transferred to the buyer in multiple stages (or sub-sales) to avoid paying Stamp Duty on the full purchase price of the property.
Nominee company
This is where the property is transferred to a nominee company as an interim step in the transaction process, in order to benefit from lower SDLT rates.
The following example illustrates how this works:
For example, the nominee company pays 85% of the purchase price initially (legislation stipulates that Stamp Duty is only chargeable on transfers of land ‘substantially performed’).
The company then transfers the contract to the buyer, who pays the final 15% to complete the sale.
In this example, Stamp Duty would only be paid on 15% of the purchase price.
The risks of Stamp Duty mitigation
If HMRC suspects Stamp Duty avoidance, they may investigate not only your property transaction but your entire tax affairs.
HMRC may start an investigation up to six years after the completion date of your property purchase. If HMRC decides that you should have paid Stamp Duty, you could be ordered to pay the full amount plus a penalty of up to 100% of the tax owed. You would also be charged interest which would be accrued from the date of completion.
The increase in Stamp Duty mitigation schemes has led to an increase in scrutiny from HMRC.
By using a Stamp Duty mitigation scheme, you could end up in a protracted and expensive litigation process. You could end up paying far than you would have otherwise paid in Stamp Duty.
Stamp Duty mitigation is not a cheap option
The fees charged for a Stamp Duty mitigation scheme may be up to half of the tax-saving (plus VAT).
Once the fee for setting up the scheme has been paid, the saving you make is unlikely to outweigh the risk.
Other considerations:
- A conveyancing solicitor who agrees to handle a transaction involving Stamp Duty mitigation is likely to charge a higher fee, due to the risk and complexity involved.
- You may only be charged a Stamp Duty mitigation fee if the scheme is deemed ‘successful’. However, the terms of the scheme may, for example, consider then scheme to be successful if HMRC has not investigated the property sale within 9 months of completion. However, HMRC has six years to start an investigation.
Your mortgage could be affected
If you need to obtain a mortgage and are using a Stamp Duty mitigation scheme, your conveyancing solicitor will have to disclose the scheme to your lender. Many mortgage lenders will not lend to anyone using a mitigation scheme.
Most solicitors are also not willing to handle the conveyancing on a property if a Stamp Duty mitigation scheme is involved.
Stamp Duty mitigation update - 2024
In 2018 HMRC won a landmark Stamp Duty mitigation case. As a result of the victory, HMRC has started pursuing people who used similar tax avoidance schemes.
As a result of the publicity and HMRC’s continued crackdown on Stamp Duty avoidance, Stamp Duty mitigation schemes are now rare.
Which properties are legitimately exempt from SDLT?
- A property transferred to you with no payment changing hands
- A property transferred as the result of divorce, or the breakup of a civil partnership
- Caravans, mobile homes and houseboats
- A property purchased for less than £40,000
- A property left to you in a will
Further reading:
Stamp Duty Calculator – 2024 Update
Can I get Stamp Duty relief as a first-time buyer?
How much Stamp Duty do I pay on a buy-to-let property?
