HMRC & ASA Crackdown – Don’t throw out the Baby with the Bathwater!

In late December, it was announced that HMRC and the Advertising Standards Authority (ASA) had joined forces to clamp down on misleading marketing as part of stamp duty land tax avoidance schemes.

The collaboration has set out the requirements, detailing that promoters must be clear about the potential consequences of stamp duty and other tax avoidance in any online adverts.

However, whilst HMRC and the ASA are quite rightly making efforts to make it more difficult for tax avoidance schemes to endure amidst the current Stamp Duty holiday, there are still many instances in which the tax due on transactions are lower than “common sense” might indicate and there is real danger that conveyancers may dismiss the news that the lower tax bill as being tax avoidance when in fact it is 100% correct. The consequences of making this reactionary judgement may well prove to be an unhappy client and a claim on their PI by a claims farmer who subsequently uncovers the true figure and demands compensation from the firm!

It is well established that an analytical approach to a property purchase can produce significant drops in the tax rate and tax bill, particularly with regards to mixed-use property, multiple dwellings relief or the special exemptions that apply to partnerships.

The difference between residential property and mixed-use property can be dramatic – the rate drops from 15% (from 2021 to 17% for a non-resident) to 5% and can even be further reduced by claiming multiple dwellings relief.

With this in mind, let’s review a few examples where a good understanding of the complexities of Stamp Duty can produce uncommon, but nevertheless correct, results – in both personal and corporate environments:

Example 1:

John buys a property in the country as a second home for £2.5m. He currently would pay £263,750 (£288,750 post-holiday) but if the property is not wholly residential then the tax bill would fall to £114,500 and this represents a saving of over half the tax. Similarly, even with basic residential properties, claiming multiple dwellings relief could save an additional £10,000 to £87,000 depending on the price of the main dwelling.

Example 2:

Company A has a property, which it wishes to transfer to company B.

If the property is worth £4m, then tax of £190,000 would be due based on its market value. If these companies are in common control, then the tax must be paid. However, if the companies are in common ownership (i.e members of the same corporate group) then group relief is available, and the tax falls to nil. This can be achieved by carrying out a simple evaluation of the proper corporate structure.

Example 3:

Joseph and Mary want to incorporate their four buy-to-let properties (value £1m) into a portfolio for partnerships tax relief. If Joseph or Mary were to hold the portfolio in their sole name, the tax would amount to £30,000 (post-holiday £40,000). However, thanks to the regulations concerning partnerships, if the portfolio is held jointly under both names, then the tax would be £nil.

In light of these examples, significant reductions in the first figure of Stamp Duty tax – even for the most basic purchases – can be achieved by proper analysis, with a little more attention to detail and consulting an appropriate experienced adviser.

With this in mind, I would encourage property professionals, and their clients, to seek professional advice from an experienced SDLT advisor, such as Cornerstone Tax, to ensure that they can legally and safely benefit from what could be considerable savings and avoid the risk that a subsequent compensation claim might bring.

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