Stamp Duty Land Tax (SDLT) replaced stamp duty for property transactions with effect from 1 December 2003 and is charged at 1% for purchases over £125,000, 3% for those over £250,000 and 4% over £500,000. A new 5% band comes into force on 6 April this year for purchases over £1,000,000.
As the legislation was quite complex, it led to a number of schemes (usually for purchases over £500,000) claiming to exploit loopholes and avoid the payment of any SDLT. Although the implementation costs often amount to half the SDLT otherwise payable, the saving to purchasers is still significant. Promoters of these schemes invariably claim that they are watertight, backed by a senior barrister’s opinion and approved by HM Revenue & Customs (HMRC).
This sounds convincing but is it that easy to avoid paying SDLT? At Hart Brown we have always been sceptical. SDLT is a compulsory tax on property transactions. If a person purchases a property for more than £125,000.00 he should expect to pay SDLT at the appropriate rate. This view is supported by HMRC which recently announced that it is challenging these schemes as it does not believe they work or have the effect the promoters claim, adding it “will relentlessly pursue those who deliberately bend or break the rules – including where appropriate seeking penalties”.
Anyone who has participated in such a scheme now faces the prospect of paying the SDLT many months or even years after completion, with interest for late payment and costly penalties, an investigation into his or her financial affairs and, in the worst case scenario, prosecution.
For those still tempted to participate the message is clear – do not be fooled by the promoters’ claims, however persuasive they may appear to be. It is not worth the risk.
Peter Howe, Associate, Hart Brown
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