Confusion over Stamp Duty Land Tax
The recurring confusion was over the highest rate of SDLT as people seem to think that it is 15% for properties over £1.5m, which is true but also misleading. Let me give you a brief example.
One gentleman was concerned that his SDLT bill would be £300,000 if he bought a property worth £2m. However, he was rather surprised when I told him that as it was his daughter who was effectively buying the property and as it was her only property, the SDLT bill would in fact be £153,750.
Do you think that halving the SDLT bill makes a difference? As you can see, this equates to an SDLT rate of 7.7% which is slightly more acceptable than 15%.
So why is there such confusion over this?
Well, it is because the headline grabbing/scare story 15% rate is actually two rates:
1. SDLT works on a sliding scale. The maximum rate of 12% is only payable on the value of the property over £1,500,000
2. If this is a second property, i.e. you own a property anywhere else in the world, and/or you are using a corporate structure to acquire the property, then an additional 3% SDLT is payable on the entire sum
So, if the gentleman in question was buying the £2m apartment for himself, he would have had to pay £213,750 as he owned properties elsewhere. Nevertheless, this is still an effective rate of 10.7% rather than 15%.
Of course, the more expensive the property, the more of the value falls into the 12% SDLT band. Add the 3% and that is how you get an effective rate of 15%. But, as ever, you need to be sure of your figures before you start even looking for a property. So, please speak to your tax advisers before you start looking for property as there may be other tax implications that you need to consider.
One final word of caution: there are certain firms that will tell you that they can help you avoid paying SDLT or at least massively reduce the cost. Please be very wary of such firms. Even if the “scheme” works now, which is unlikely, it could be retrospectively deemed as tax evasion and then you will be hit with fines in addition to the expense of the scheme and the SDLT you will have to pay.
There is also the reputational damage to consider.
Basically there is no substitute for doing your homework and getting advice from proven, reputable firms. If you would like me to recommend good tax advisers and solicitors, please let me know.
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