Buying property can often be a complex and expensive process, not least of all because of the additional charges and fees that come along with ownership. Depending on your circumstances, one of the most inconvenient expenses can be paying for Stamp Duty Land Tax (or SDLT), that can number in the thousands for just a single property.
Many property buyers have previously attempted to avoid paying SDLT through complex loopholes or avoidance schemes. Unfortunately, this can often lead to complicated circumstances or issues where the participant will actually have to pay more in the long run.
We’ve put together a short guide on Stamp Duty and the schemes associated with it so you can watch out for these SDLT avoidance schemes in the future.
What is Stamp Duty Land Tax
Stamp Duty Land Tax (or SDLT) is normally paid to HM Revenue and Customs as part of a property or land purchase, as long as it is worth over £125,000 for residential property purchases and over £150,000 for non-residential land.
Whilst this applies for residents of England and Northern Ireland, it also applies in Scotland where it is called the Land and Buildings Transaction Tax, and Wales where it is called the Land Transaction Tax.
The SDLT is also referred to as ‘the consideration’ and will normally be paid through a solicitor, agent or conveyancer at the same time as settling any legal fees.
How Can I Avoid Stamp Duty Land Tax?
The only circumstances where SDLT does not need to be paid within 30 days of the property purchase are:
- If the property is worth £125,000 or less
- Transfer of a property in a separation, divorce or in a will
- If you are a first-time buyer and the price of the property is £300,000 or less
First-time buyers are completely exempt from stamp duty as long as the property being purchased is for £300,000 or less. If the property is worth more, they will simply pay SDLT on the amount above £300,000 rather than the whole amount as long as the price does not exceed £500,000.
SDLT is also charged at increased rates on those purchasing additional residential property.
The stamp duty rate increases depending on the value of the property according to the following values:
- £125,001 – £250,000 = 2%£250,001 – £925,000 = 5%£925,001 – £1.5 million = 10%Over £1.5 million = 12%
For additional properties, these rates are increased by 3% and start with the first £1 of consideration.
What are stamp duty avoidance schemes?
Given that SDLT can be very expensive for those purchasing multiple properties, there have been many attempts to abuse stamp duty loopholes. These tax avoidance schemes have been promoted by solicitors or conveyancers over the years to attract clients who wish to cut down the cost of stamp duty.
In general, the avoidance schemes work by taking advantage of certain types of land transactions that are exempt from SDLT or completing a complex series of transactions to combine SDLT exemptions.
In general, HMRC has become much better at investigating these schemes and cracking down on what they deem to be misleading information from those wanting to reduce or avoid paying the tax.
They introduced a targeted SDLT anti-avoidance rule in section 75A in late 2006 and the General Anti-Abuse Rule (or GAAR) in 2013 to counteract avoidance schemes and now have the power to impose heavy penalties on those promoting stamp duty avoidance and subsequently misleading consumers who simply want to save money on the purchase of a new property.