Sam Dunn: Is this stamp-duty-avoidance plan legal and above board?
Wednesday 03 December 2008
Question: I'm chasing a property that's on the market for an already reduced £265,000 but want to avoid the hefty 3 per cent stamp duty. Could I offer £248,000 and so pay stamp duty at 1 per cent instead, and pay £17,000 separately for all the fixtures and fittings (of which there are plenty). Can we legally do this?
Answer: It may well sport all the markings of a crafty tax dodge, but as long as you tread carefully, what you propose is actually all above board. Most buyers' nervousness about what you can – and can't – get away with today stems from previous lackadaisical rules. These let cunning buyers avoid higher stamp duty by grossly inflating the supposed value of fixtures and fittings such as kitchen and bathroom units, wall-mounted ovens and walk-in cupboards, items that could be paid for separately to the seller.
Previously, buyers could send off a form with such purchase details to the Government's stamp-duty office. This fostered an incentive: by paying large cash sums (or at least claiming to) direct to the seller for fixtures and fittings, a buyer could then spend a lot less for the price of a home, and avoid the higher stamp-duty tax band. Much of this practice took place in protest at Government rules on stamp duty, still in place today.
Buy a house at £249,999 and your tax bill at 1 per cent is £2,499; choose one next door priced just £1 more at £250,000, and the higher 3 per cent stamp rate will set you back a chunky £7,500.
So what's different now? Stung by the tax loss, the Government clamped down in 2003 and forced solicitors or conveyancers to take the reins; a simple process turned overnight into a complex six-page test that must now be seen by tax officers.
This has curbed the worst practices but left uncertainty hanging over what can be a legitimate practice, says Richard Morea of broker London & Country. "It's a legal move as long as the sum you pay for fixture and fittings is realistic; if you're buying a big house in an expensive area, these could be worth a lot of money," he says. If somebody left an Aga, wall cupboards and fitted kitchen, then it could add up to thousands that you pay separately, he adds. "But if you're buying a one-bedroom flat, it's not going to work."
So if the fixtures and fittings are truly worth £17,000, you'll be fine. However, warns Melanie Bien of broker Savills Private Finance, "those buying just under the thresholds of £250,000 and £500,000 are most likely to arouse suspicion and possible further investigation". If the tax man suspects that you have deliberately dipped under a stamp-duty threshold, alarm bells can still ring, so make sure your fittings have an accurate market value.
A final tip: Why not offer £248,000 all-in? With prices still falling – 0.4 per cent in November, says Nationwide – it's a buyer's market.
Life & Style blogs
The secret report that helps Israel hide facts
A day in the life of Vladimir Putin: The dictator in his labyrinth
Woman and two children killed by mob in riots over 'blasphemous' Facebook post in Pakistan
A new Russian revolution: The cracks are starting to appear in Putin’s Kremlin power bloc
Were 'Poor Doors' added to mixed developments so wealthy residents don't have to go in alongside social housing tenants?
Arizona execution lasts two hours as killer Joseph Wood left 'snorting and gasping' for air
- 1 Woman and two children killed by mob in riots over 'blasphemous' Facebook post in Pakistan
- 2 Christians: The world's most persecuted people
- 3 The secret report that helps Israel hide facts
- 4 Richard Dawkins says 'date rape is bad, stranger rape is worse' on Twitter
- 5 Danish TV reporter is all business up top, all party down below
£350 - £400 per annum + competitive: Orgtel: Project Manager (specializing in ...
£40000 - £50000 per annum + competitive: Progressive Recruitment: Embedded Sof...
£50000 - £65000 per annum + Benefits: Progressive Recruitment: Working for a m...
£200 - £250 per day: Orgtel: Reconciliation Analyst Gloucestershire