Mmmmm? What do you think?

http://www.bbc.co.uk/news/business-15479321

If you’re currently purchasing or considering the purchase of either residential or commercial property, you’ve probably assumed that you will have to pay SDLT. However, with recent changes in the law and a little careful planning, we can help you unlock significant tax savings.

Generally, SDLT is payable in the UK on land transactions such as the acquisition, disposal or variation of an interest in land. It is a self-assessed tax, which increases as the value of the transaction increases. Currently, SDLT is payable according to the following bands:

Relevant Consideration Percentage

Not more than £125,000 0%

More than £125,000 but not more than £250,000 1%

More than £250,000 but not more than £500,000 3%

More than £500,000 4%

In addition to the current bands of SDLT, the government intends to introduce an additional band. The proposed band applies to residential property with consideration over £1 million. The new band attracts SDLT payable at 5% and will apply to transactions with effective dates on or after 6th April 2011.

How we can help

SDLT Mitigation

It has examined the impact of the stamp duty thresholds over the past ten years using house prices and home sales from the HM Land Registry and Halifax’s own statistics database. Stamp duty revenue data has been sourced from the HM Revenue and Customs.

The higher stamp duty thresholds – £250,000 and £500,000 – have been unchanged since their introduction in July 1997 despite a 140% increase in house prices over the period to January 2011. If the higher stamp duty thresholds had been increased in line with house price inflation since July 1997, the £250,000 threshold would now be £600,000 and the £500,000 threshold would stand at £1,200,000.

The failure to raise the higher stamp duty thresholds has helped to drive a five-fold increase in the proportion of home buyers required to pay stamp duty at the higher rates over the past decade.

Halifax calculates that the proportion of residential property sales worth over £250,000 and, therefore, attracting a minimum stamp duty rate of 3% stood at 26% in 2010; over five times the percentage of sales over £250,000 in 2000 (5%). There are an estimated five million homes in the UK that are now valued above the £250,000 stamp duty threshold compared with 875,000 in 2000.

Stamp duty revenue rose by 12% from £2.9billion in 2008-09 to £3.3billion in 2009-10. However, stamp duty revenue has more than halved since reaching a recent peak of £6.7billion in 2007-08.

This is largely due to the declines in both the number of house sales and house prices over the period. Some 86% of the total residential stamp duty revenue raised in 2009-10 was accounted for by the amount raised at the higher stamp duty bands. Ten years ago, the higher stamp duty bands accounted for 49% of total residential stamp duty revenue.

The average stamp duty bill has risen by 88% (£838) over the past decade with home buyers seeing the amount they pay rise from an average of £955 in 2000 to £1793 in 2010. The average stamp duty paid is currently equivalent to 5.4% of average UK full-time earnings, up from 4.2% in 2000. Stamp duty is highest in proportion to earnings in the capital with the average stamp duty paid accounting for 19% of a Londoner’s average annual full-time earnings.

In contrast, the average house price in the North East remains below the threshold for the lowest stamp duty band.

Martin Ellis, Housing Economist at Halifax, said: “There has been a substantial rise in the percentage of homebuyers paying stamp duty at the higher rates over the past decade, reflecting the combination of significant increases in house prices over the period as a whole and the fact that the higher stamp duty thresholds of £250,000 and £500,000 have remained unchanged since their introduction in 1997.

“However, it is encouraging that a number of steps have been taken in recent years to aid those looking to get on the property ladder, including the temporary increase in the starting threshold from £125,000 to £250,000 for first-time buyers.

“The future for stamp duty continues to provoke much discussion with some advocating fundamental changes including index linking the stamp duty thresholds to house price inflation or even replacing the current system with an annual property tax. Any further changes to stamp duty will ideally reflect the economic benefits associated with promoting greater residential mobility.”

It’s impossible to go into any real depth on any one scheme here but here are some highlights of what we would expect a client to see in any particular plan:

1).        That  a scheme has been running for a good length of time (even with amendments).
2).        That its proven to work in  a good number of cases.
3).        The planning is backed by a robust Counsel’s Opinion given by leading Tax Counsel.
4).        That the plan has been disclosed to HMRC and has a corresponding scheme disclosure number ensuring that it is fully compliant with HMRC requirements for tax planning.
5).        That any queries by the Inland Revenue have been promptly and easily satisfied.
6).        That the saving from the scheme is substantial.
7).        That there is a ‘no-win-no-fee’  undertaking, via which all fees are fully refunded to the client in the event of a successful challenge by HMRC.
9).       That the scheme is low risk and non-aggressive and does not involve either the vendor or the lending institution involved in the transaction or effect their title, security or ability to realise funds from the sale of the property.

This tax planning can seriously improve your wealth by providing savings of up to 50% on Stamp Duty, it is worth exploring. You may be aware that a certain national newspaper ran an article (2009) about the previous (Labour Party) government’s use of SDLT planning which saved them £210,000 in stamp duty land tax.

It is important to note that with this tax planning, a specialist conveyancing solicitor is a crucial link of it’s success. Most conveyancing solicitors generally will not or have not taken the time to properly review the planning and most importantly the council’s opinion and as a result may advise against the schemes due to lack of knowledge.

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We work with homemovers who want to lower the cost of moving by mitigating their stamp duty and the new national UK property search portal shows the savings that can be made against every property in the UK over £250,000

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Unfortunately you may have seen websites promoting simple cost effective solutions that guarantee that your liability will legally be reduced to zero – nothing could be further from the truth. Whilst it is possible to substantially reduce or mitigate entirely the stamp duty payable on your property purchase by implementing appropriate tax planning, the outcome is not guaranteed.

Solutions are possible, just not definite.

In the past many ‘off the shelf’ schemes were available but these have now largely been closed by HM Revenue & Customs and understandably access to the details of schemes that remain unnoticed are strictly confidential.

A bespoke tax structure reviewed by legal counsel before implementation remains the prudent approach. Your tax planning may still be challenged by HMRC but you are protected from accusations of tax evasion because of the council sought at outset.

A successful structure will save thousands on properties over £250,000

• SDLT structures on properties worth less than £250,000 are not advised.

Based on a purchase of £2.5 million the figures are as follows:
SDLT without planning – £125,000
SDLT with planning – nil
Fees: £50,000 + vat
Saving: £65,000

Patrick Cannon

Revenue and Customs has lost the first case involving a stamp duty land tax (SDLT) avoidance scheme to come before the tax tribunal

Although the result seems correct, the reasons given by the tribunal for its decision seem unrealistic and, in some respects, may be wrong.

The case involved the purchase of the Dickens & Jones store on Regent Street in London in 2006 for £65m. Calling the seller A and the purchaser B, B would normally have had to pay SDLT of £2.6m on its acquisition from A. However, B used a subsale-into-partnership scheme to reduce the SDLT to nil.

The scheme worked by B, on completing its purchase from A, immediately selling the property into a partnership (“C”) of which it and some associated companies were the partners.

This case represents an important win for the taxpayer

The sale from A to B would be disregarded if it completed at the same time as the completion of the B to C subsale. The subsale from B to C took advantage of the SDLT partnership rules on a sale by a partner into its own partnership to reduce the SDLT to nil. Result: no SDLT on either leg of the transaction.

Revenue and Customs argued that the seller was A, not B. Hence C had acquired from a non-partner and full SDLT must be due. The taxpayer argued the seller must have been B because C acquired the property on completion of the B-to-C contract.

In this and other types of A-to-B-to-C situation the SDLT legislation disregards both the real-world A-to-B and B-to-C contracts and deems that a notional contract exists under which C is the purchaser.

The SDLT legislation refers to this artificial contract as the “secondary contract”. Unfortunately the legislation is intentionally vague on whether A or B is the seller. The identity of the seller matters of course where, as here, if it was B then C pays no SDLT.

The tribunal held that the “secondary contract” was between A, B and C. Because B was a partner in C, the tribunal said that there was nothing to prevent the partnership rules applying
to C’s acquisition from B and hence no SDLT arose on C’s acquisition.

This was unaffected by the fact that B had simultaneously acquired the property from A using another provision that removed the SDLT on that transaction.

Pair of problems

Although this is the correct result, there are two fundamental concerns. First, the tribunal’s decision that the secondary contract was between A, B and C appears to ignore section 45(5A) (b) of the Finance Act 2003, which says that the seller under the “secondary contract” shall be either A or B.

In deciding the “secondary contract” with C has both A and B as parties to it, the tribunal seems to have overlooked this. Second, treating A as a party to the “secondary contract” appears unrealistic in this case.

If this transaction followed the usual course, then when A sold to B it had no knowledge of C and may well have inserted a special condition in its contract preventing a subsale in the sense that A could not be compelled to transfer the property to anyone but B. If so, it seems strange to decide that A was a party to the “secondary contract” with C, given that A had no involvement or connection with C.

Despite the flaws in the reasoning, this case represents an important win for the taxpayer. Reliance on a blatant tax avoidance scheme did not affect the literal and purposive operation of two different parts of the SDLT code when combined together to produce a nil tax result.

Patrick Cannon is a tax barrister at Tax Chambers, 15 Old Square, Lincoln’s Inn, London