Beware of Stamp Duty avoidance schemes, says law firm

24 October 2011 | By Natalie Thomas

It says HMRC is taking an increasingly dim view of such schemes being offered, usually via the internet.

The firm says an increasing number of wealthy individuals are buying property through companies, often located offshore, to avoid paying Stamp Duty, which it says could be fuelled by the increase earlier in the year of the Stamp Duty rate to 5% on properties valued over £1m.

Ian Montgomery, a solicitor specialising in tax at Boodle Hatfield, says: “There is a growing belief that it is possible to avoid paying Stamp Duty on the purchase of a property or land, but unless particularly aggressive tax planning is undertaken that is just not the case.

“It is a common misconception that it is possible to purchase a property using a company and avoid Stamp Duty.

“When a property is purchased through a company, whether based offshore or in the UK, it pays the same rate of Stamp Duty as if it where an individual. Stamp Duty may be avoided by future purchasers when the company decides to sell the property. This is done by the owner selling shares in the company rather than the property itself, but Stamp Duty will be paid on the initial purchase.”

Stamp Duty on the purchase of shares stands at 0.5%, rather than the four or 5% on property. If the company is based offshore the purchase of shares is exempt from Stamp Duty entirely.

On a residential property valued at £2m, the purchaser could save £90,000 from purchasing the shares in a UK company holding the property as opposed to purchasing the property direct.

Montgomery adds: “The seller may also be able to negotiate a higher purchase price for the shares so that the Stamp Duty saving is basically split between the parties,”

He says it is possible however to reduce exposure to Stamp Duty by taking advantage of the one or more of the reliefs and/or exemptions contained within the Stamp Duty rules.

He adds: “One such example is to reduce the purchase price of a property subject to Stamp Duty by attributing part of the purchase price to chattels and any other assets not liable to Stamp Duty, as long as the amount attributed to these assets does not exceed their real value.”

It says there are other more aggressive ways of actively avoiding Stamp Duty being promoted, often via the internet, but HMRC is actively targeting such schemes.

Montgomery adds: “Such schemes can be considered very aggressive tax planning and HMRC is taking an increasingly dim view and is prepared to challenge them through the Tax Tribunal. They often rely on HMRC not chasing individuals who engage in them, and this is a very risky strategy. Our advice would always be to steer clear of such schemes.”

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