Tag Archives: stamp duty

Stamp Duty Land Tax – Losing the relief

Leave a reply

An interesting case on SDLT was concluded recently, whereby HMRC were successful in overturning a claim for relief from the 15% rate of SDLT, but unsuccessful in their attempts to charge penalties for an incorrectly filed SDLT return.

By way of a very brief background to what was set out in the case, a property developer, through his limited company bought a house to demolish and re-develop for resale. The company claimed relief from the 15% SDLT rate on the grounds of the re-development but after it was built, a number of events transpired, and he ended up occupying the house personally with his wife for a few months.

HMRC raised an enquiry. This led to the developer subsequently paying over the extra SDLT (which was 150% more than the SDLT originally paid). The grounds for this were that as a non-qualifying individual, the company would lose the relief, if he lived in the home for any period of time.

HMRC were not successful however, in their attempts to claim the penalties of circa 25% of the tax. The reason being that they failed to prove that the developer had intended to live in the property all along.

Lessons for Property Developers

The interesting points for me here are:
• HMRC did and do regularly raise enquiries for SDLT relief claims;
• The developer ended up paying the extra SDLT to 15%, on the basis that as soon as he took occupation (in the 3 year controlled period), he lost the right to that relief;
• The burden of proof was on HMRC to prove that the SDLT return had been inaccurately completed, which they couldn’t;
• a large part of that failure was due to their inability to disprove the developer’s intentions at the very start of the process, ie, when he acquired the property. Intentions are often irrelevant for SDLT purposes, which are more based on actual facts at the time of completion, but this is an interesting departure in the case of a relief to be claimed;
• it was suggested that if the company had not been ordinarily engaged in property development, HMRC would have had a stronger case.

I do feel for this developer.

Whilst he ended up paying the right amount of tax based on what actually happened, he paid a high price for not spotting, or being advised of the dangers that occupation of the property would bring, however innocent the reasoning for that was.

The message can only therefore be that one should always take advice before acting, and put all the facts on the table so the advisor can fully consider these.

And of course, the warning is that whenever a relief has been claimed, an extra cautious approach is needed. This applies across all taxes.

Can I avoid paying stamp duty on my house purchase?

Leave a reply

Avoid stamp duty land tax on your house purchase and you may end up having to pay not only the tax, but penalties, interest and the scheme promoter’s charges on top. new house property

There are currently a lot of stamp duty land tax (SDLT) avoidance schemes being promoted on the internet. These are of sufficient concern to the Law Society for it to have has written to all of its members warning them of the potential dangers of getting involved in the provision of such schemes. The schemes are mostly targeted at property purchases in excess of £500k, and claim a 100% success rate. Promoters claim that they can legitimately arrange a property purchase in such a way as to result in a nil rate SDLT charge and they will typically charge a fee equivalent to half of the SDLT allegedly saved.

Most of these schemes seek to take advantage of SDLT sub-sale exemption. This is a legitimate exemption which avoids a double charge to tax where there are more than one transfers of property in what is essentially a single sale. A sub-sale may occur for example where a purchaser acquires a large plot of land but does not need it all. The purchaser will arrange to sell the surplus to a third party and direct the vendor to convey that surplus direct to the third party. The scheme promoters believe that by artificially introducing a sub-sale they can achieve a nil rate of SDLT.

What the scheme promoters may not highlight in full is that there is anti-avoidance legislation which applies to many SDLT schemes. Also many of these schemes are already being investigated by HM Revenue and Customs and leading Tax Chambers tell us that they have cases on their books which are queued up waiting for hearing dates. If a scheme is found to be ineffective, HMRC will seek the tax, interest and penalties from those who have used them.

It is telling that the schemes are usually marketed as only being suitable for purchases in excess of £500k. There is no technical reason for this other than the level of fee to the scheme promoter as in theory, if the scheme works, it will work for any level of purchase.

Our advice to you if you are considering using an SDLT avoidance scheme is to treat it with a healthy degree of scepticism.

15% SDLT – “Stop the world, I want to get off – well at least until the 2012 Finance Act is passed”

Leave a reply

We’re well aware of the recent budget announcement for a 15% SDLT charge on certain property acquisitions, but this created a hiatus period between the budget being announced and the likely passing of the Finance Act in June/July 2012.

Let’s summarise below what the Finance Bill currently states:

  • A punitive SDLT rate of 15% will apply where a residential property costing over £2m is purchased by anything other than a person, eg, a Limited Company. The SDLT rate for a “person” making that same purchase would be 7% so clearly, this has a big impact – even on a £2m acquisition the difference in SDLT is £160,000.
  • When drafting the 2012 Finance Bill, the Government have clearly listened to property developers and so have included a very narrow exclusion for them. The current draft therefore allows those developers who buy the property in the course of a bona fide property development business and for the sole purpose of “developing and reselling the LAND” to pay 7%, and not 15% SDLT.

Furthermore, the property development company must have carried on that business for at least two years before the transaction to qualify.

  • Note the inference that the company must make the purchase with a view to development and resale – not holding for investment purposes. There is no indication as to how any change of intention will be taxed.

There are therefore TWO particular risks for anyone currently making a relevant acquisition:

    1. That there is some change to the drafting of the Finance Bill before it is finally passed that makes the criteria more strict for example, the 2 years standing is increased – this is remote, but a risk nevertheless.

 

  1. That the get out for property developers is narrower than my reading of it would infer. Of specific interest is the word LAND that I have written in capital letters above.

The legislation refers specifically to “reselling the land” but does the re-development of a building count as “land”. I’m sure there is case law around to support one view or the other, and the chances are that this is not as significant as feared – but hey, when we’re talking about £160,000 in SDLT even on a £2m purchase, it would be unwise to ignore this risk.

So until the Finance Act is passed as law, uncertainty reigns supreme and leaves two obvious questions:

– what exactly are corporate developers supposed to do, and

– what does this do to the high end residential property market?