Stamp Duty Land Tax - is it avoidable?

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

A self fulfilling prophecy?

The prediction of a sharp drop in house prices comes as no surprise in a sluggish market lacking buyer confidence. The suggestion by pundits of a price drop becomes a self fulfilling prophesy after a while as the more that people “in the know” talk about the drop, the more that buyers seek a bargain. Interestingly the Nationwide is trying to shed a more positive slant on the market with of course their having a vested interest in seeing the market very active. Ironic therefore that one of the reasons for the lack of sales and reduced confidence is due to mortgagees, including The Nationwide, tying a very firm knot in the lending purse strings.


A temporary aspirin?

Meanwhile, having picked myself up from the floor having digested Northern Rock’s decision to provide 90% mortgages I have to question whether those in charge are really in touch with reality. One imagines that the interest rates for such loans will be high, the arrangement fees reasonably punitive and the borrowers being asked to pay a hefty premium for a mortgage protection policy. The latter should in fact be called a “protect your lender policy” as it is the lender who benefits from the policy which is taken out at the borrower’s expense.

A dip in values by 8% will prevent property owners who have a 90% mortgage at the time they bought from selling as the associated costs in professional fees will amount to 2% so in essence putting more properties into negative equity. Add in possible early redemption penalties to the equation and this band of property owners will be in real difficulty.

The sense behind a 90% lending strategy has to be really questioned. Is this a case of temporary aspirin bringing longer term headaches?

Let us know what you think.

David Knapp, Partner
Residential Property

House prices heading for a fall, surveyors warn

The report does confirm the trend experienced by Hart Brown’s residential property department over the last 2 or 3 months. The number of transactions has reduced with buyers becoming much more circumspect before offering on properties. The first 6 months of 2010 saw activity levels close to those of the heady days of 2007 but this was mainly due to a release of frustration from pent up buyers who had sat on their hands during the worst of the recession.

Once the fears of the public became reality in the form of massive public spending cuts following the election, buyers once again faded away at the same time as a number of sellers put their properties on the market. The political uncertainty at the time of the election saw some sellers holding fire in marketing until after the election which in hindsight can be seen as unwise. Since the election the balance has indeed swung in favour of buyers who, on a supply and demand basis, have more properties to choose from.

Some reports suggest that September’s lending figures show the lowest number of approved mortgages were the lowest for 10 years.

Due to uncertainty over jobs and the medium term concerns over the performance of the property market the % of transactions becoming abortive is higher than for some many months with many sellers who lose buyers selling at a good 5 or 10% less than the original offer.

The rental market is extremely buoyant which is a bad sign for the residential market as potential buyers are moving into temporary accommodation to gauge the market in the hope and now, expectation, of a further drop in prices.

As for the longer term view interest rates hold the key. The timing of any rise in rates will be absolutely key. Any rise ion the next 6 to 9 months would probably kill the market stone dead and cause some house owners huge problems. Coming out of fixed rates or tracker deals into above base rate products would see mortgage payments increase considerably and without pay rises result in many mortgages becoming unaffordable. Fire sales or repossessions would follow. We need to remember that rates came down in huge chunks, 1% and 0.5%, and are likely to go up at a similar rate, especially if inflation keeps running away.

A chill wind will blow over the already fragile residential property market this winter and possibly extend into the middle of 2011

Read the the article here

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Article author: David Knapp