Gardner Leader

The Unavoidable Tax - Stamp Duty Land Tax

Rarely a week goes by when Stuart Durrant, Conveyancing Partner at Gardner Leader Solicitors, doesn’t get a call from a client believing that they may have discovered an amazing new loophole in the Revenue’s Stamp Duty Land Tax (SDLT) provisions. In this article, Stuart takes a closer look at suggested ‘loopholes’.
SDLT is payable at a rate of 1% on the purchase price of a property between £125,000 and £250,000 and at a rate of 3% between £250,000 and £500,000.

Generally ideas fall into two main categories.

• The first (and most common): ‘I’m buying the house for £249,999 and paying £23,000 for the carpets’. This attempts to reduce the SDLT payable because the tax is payable on the land element only and not on personal effects. As the sum attributable to the land is below £250,000, a rate of 1% applies instead of a rate of 3% (and would save £5,690);

• The second is: ‘I’m buying the house for £180,000 and the garden for £80, 000’.  This attempts to create two separate transactions each for less than £250,000 and again the rate of tax payable is 1% and not 3% (and would save £6,000).

 
Both examples are almost certainly tax evasion and unsurprisingly the Revenue has thought of both.
To state the obvious tax evasion is illegal, but tax avoidance is legal. Provided that there is a proper apportionment of the price, no charge will arise in respect of items other than land, such as carpets and curtains. A totally artificial and unjustifiable apportionment of the price (and I would suggest that £23,000 for carpets in our first example is excessive) in order to produce a particular taxation result may be criminal fraud on the Revenue and lead to an unenforceable illegal contract.

If the apportionment of the price is genuine, it is important to make it clear from the start that that is the agreement. Preferably the estate agent’s details should reflect this, as should the Fixtures Fittings and Contents Form and contract. Restructuring the deal and the price at the point you pay the tax will raise suspicions.

Splitting the garden and the house into two transactions would be deemed to be a linked transaction for SDLT purposes. The Revenue says that whether transactions are linked is a question of fact. A purchaser will need to make a full examination of all the circumstances leading to the transactions before completing their land transaction return. Just because two transactions are between the same parties does not necessarily mean they are linked. They will, however, be linked if they are part of the "same deal". Documenting them by separate contracts will not prevent them being linked.

I know this is vague, but in my experience scenarios usually fall into the elephant test territory i.e. you know one when you see one but you can’t define it. If you were to purchase an additional piece of land some months later and there was no tie into the original contract that would be perfectly acceptable. However, in speaking to the Revenue the other day, they indicated their stance that if you were to buy a number of properties with separate contracts completing on different dates, they would view the transactions as linked if they could prove that a discount had been obtained as the transactions represented a ‘bulk deal’.

When you buy a property or land, you must submit a land transaction return and send it to the Revenue with details of:
• The effective date of the transaction;
• The purchase price of the property, and
• A calculation of the tax payable.

 
Your solicitor will normally complete the return for you as part of handling the transaction however you are responsible for the information submitted.

 
Once the return has been processed and the appropriate amount of tax has been paid, a certificate is issued and we will need this certificate to register the property for you at the Land Registry.
It is the primary obligation of the taxpayer to pay the correct Stamp Duty on completion.  When the Revenue assesses each return, if they discover that insufficient tax has been paid, they can enforce interest and penalties. The Revenue may make a determination of the tax at any time within six years following the effective date of delivery of the chargeable transaction return, calculating the tax to the best of its information and belief.

 
So, if you think that the structure of your transaction is simply a device to reduce SDLT, then it probably represents tax evasion, and not only could you be liable, but so could your solicitor as a co-conspirator which is why he or she will not be keen or able to assist!

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