Tax temptation of the week: Stamp Duty Land Tax avoidance

The Saturday Times* was headlined with reference to a story about how the 'super-rich' avoid paying Stamp Duty Land Tax (SDLT) when they buy their mansions.

Simply stated the property doesn't change hands. The purchaser buys the shares in a limited company that owns the property. As long as the company itself doesn't sell the property there is no SDLT to pay.

Easy? Not at all. How to do you get the property into a limited company in the first place without paying SDLT? There are many complex tax related minefields to negotiate to make such a plan work. And it costs thousands of pounds to find out if it would be possible and to navigate the minefields.

Please do not be fooled into thinking that any of this is something to consider doing for the sort of properties that we normal mortals can afford. And there are no other simple ways to avoid SDLT any more, as I explained in May when answering the question: Are stamp duty avoidance schemes worth the money?

A similar view to mine was shared on CityWire in March. They explained: The chancellor has finally clamped down on stamp duty avoidance schemes widely used by rich individuals buying high value residential properties as well as buyers of commercial properties.

And I note that Solicitors have been advised by the Law Society not to get involved in SDLT schemes. That, I think, says it all.

The real issue here is the jealousy that the Times story generates. We don't like paying SDLT. The media are highlighting the facility available to the super-rich and we are in uproar that they can avoid this tax. But how many readers would choose to pay hundreds of thousands or millions of pounds in tax on a new property if there was a reliable legal way to avoid doing so?

So we agree that the 'loophole' should be plugged. Will it be? Don't hold your breath.

*As The Times story is behind their paywall I have linked to a rehash of the same story on the 'This Is Money' website.

Are stamp duty avoidance schemes worth the money?

I was intrigued by a response to one of the Questions of Money items in the Times on Saturday. I had asked a similar question of a top stamp duty tax lawyer during the week.

The questioner in The Times noted that he was:

"looking to buy a two-bedroom flat in London and was contacted out of the blue by an outfit selling a stamp duty avoidance scheme."

Was it effective or too good to be true?

The answer contained good advice to the questioner that it really wouldn't be a good idea.

"The risk is that you pay a [promoter] a substantial sum to avoid tax, HMRC get wind of it, closes down the scheme and you end up having to pay stamp duty [land tax] after all, having already forked out the fee."

These schemes rely on the naivety and greed of people who object to paying stamp duty land tax. They are no doubt advised that the scheme is legal and robust. Why should anyone question this?

Last week I asked a top stamp duty tax lawyer his opinion of SDLT avoidance schemes. He said that there are NO off-the-shelf schemes around any more that work and which are legal. The anti avoidance tax changes in recent years have had the desired effect. In effect, unless one is spending more than a £1m and is willing to enter into convoluted transactions that can be complex to unwind, SDLT tax avoidance is dead.

You wouldn't think so if you look online for SDLT avoidance schemes. One promoter claims they can save you tax on the acquisition of properties worth more than £250k. At least two others set a minimum of £500k.

If you are still tempted, you may feel there is nothing to lose if the promoter promises to refund the fee if the taxman forces you to pay the tax. But who knows whether the promoter will be around, contactable, able and willing to refund the fee when that happens? In which case you would be well out of pocket and you will have had the deep joy of facing a tax enquiry. They're not much fun. Still; each to their own.