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Duty calls

Savings on stamp duty land tax can be considerable

Stamp duty land tax (SDLT) is not a subject that attracts a great deal of comment in the trade press but it is a tax that is an integral part of many property transactions.

SDLT is generally payable on the purchase or transfer of property or land in the UK where the amount paid is above a certain threshold. In addition, most UK land and property transactions must be notified to HM Revenue & Customs on a SDLT return within a certain time limit, even if no tax is due.

Various rules apply for working out how much, if any, SDLT is payable. The calculation – which is based on a value called the chargeable consideration – can vary depending on whether the land is residential or non-residential, freehold or leasehold, or on other factors such as whether several transactions are linked.

There are also some types of transaction that are exempt from SDLT or where reliefs can reduce the amount payable.

Broadly speaking, SDLT is charged as a percentage of the amount paid for property or land when it is bought or transferred unless there is a relief or exemption.
Higher-percentage SDLT rates apply to higher-value transactions. The amount payable can also vary depending on whether the property is being used for residential or non-residential purposes and whether the property is sold as a freehold or leasehold.

The rates of SDLT payable currently on transactions involving residential properties are shown in the table here.

If the value is above the payment threshold, SDLT is charged at the appropriate rate on the whole of the amount paid.

For example, a house bought for £130,000 (by someone who is not a first-time buyer) is charged at 1 per cent, so £1,300 must be paid in SDLT. A house bought for £350,000 is charged at 3 per cent, so SDLT of £10,500 is payable.

With rates between 3 per cent on a property valued at between £250,000 and £500,000 and 5 per cent over £1m, it is hardly surprising that there is apparently strong interest in avoidance. On a £10m property, there would be £500,000 to save. That would mean that the promoter of a scheme that can avoid this could charge at a very profitable rate.

This is a fairly common phenomenon and one that we have seen employed by the promoters of business enterprise schemes and enterprise zone schemes in the past where serious amounts of “up-front” tax relief were available. No doubt, the same may be true in relation to the proposed new seed enterprise investment schemes.

The typical avoidance structure is apparently founded on the relatively simple setting up of an offshore company – generally registered in a tax haven – specifically to buy the target property.

The company buys the home in its name, initially paying the full stamp duty, so there is no saving on the first transaction. But when the owner decides to sell the property on, he sells shares in the company rather than the property itself.

The transaction is not logged with the Land Registry, enabling the new buyer to take over the property free from stamp duty. The company shares attract stamp duty at 0.5 per cent, or sometimes less, instead of the 5 per cent on conventional sales of property.

This is not a new story. The use of these schemes has been reported since earlier this year and currently there are any number of scheme promoters that can be found by simply googling stamp duty avoidance.

With the strong Government intent to raise tax through stamping out (no pun intended) tax avoidance, action could not be ruled out, especially as the amount of lost tax at stake appears to be at a “meaningful” level.

The press has indicated a number of potential actions that could be taken, including an annual tax on high-value property held in companies or a look-through provision on sale where the company owner is UK-resident.

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