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Avoiding Stamp Duty

January 03, 2012 | Comments: 0 | Views: 194

Avoiding Stamp Duty and Land Tax (SDLT) can be achieved several ways in the UK. There are clever processes that specialist Conveyance Solicitors use to avoid Stamp Duty for fortunate property buyers. Then there is the method of putting the property into another entity that attracts significantly less Stamp Duty when sold and has other additional benefits. These methods are also available for commercial properties but may vary slightly in methodology.

First of all let's review the Stamp Duty and Land Tax thresholds:

Purchase Price................SDLT Percentage

Up to 125,000....................Zero

125,000 to 250,000............1

250,000 to 500,000............3

500,000 to 1 Million............4

Over 1 Million.....................5

As you can see, purchases over 250,000 attract the considerable additional burden of 3 percent tax. This is a considerable additional amount that the buyer must come up with to complete the sale.

The first method of avoiding stamp duty is one that is readily available to home buyers even when using a mortgage to make their purchase. One scheme exploits a loophole created for Muslim mortgages. Muslims are not allowed to pay interest as a religious law so banks have created Government approved schemes to facilitate this. In order to be "Sharia friendly" banks have created schemes where the Muslim buyer effectively leases the property from the bank which has already purchased it. The property ownership then passes to the buyer when the lease has been paid in full. However, in order that Stamp Duty is not paid by both parties the Government approved scheme avoids this. This scheme is currently exploited by solicitors to avoid stamp duty for their clients.

A second method to avoid stamp duty is through exploiting the rules of partnerships. This requires the buyers to be married or in a civil partnership. Some such schemes require the approval of the Mortgage Company or bank. The property is passed between the two partners on the day of completion and only the last transfer is liable for Stamp Duty so this is done below the SDLT threshold.

Another means of avoiding or at least reducing SDLT is to have the property owned or held by a holding company and not an individual. This means that at the time of sale the shares in the company are sold for the price of the underlying asset, which is the property. Stamp Duty is still levied on the transfer of the shares but at a rate of around 0.5 per cent as opposed the higher rate of 5 per cent. This means that the buyer purchases the company rather than the property itself.

Why would a property owner hold their property in a company in the first place? On the higher end of property prices in the multi millions, properties are often held in offshore companies with Jersey, Guernsey and the British Virgin Islands (BVI) as the preferential jurisdictions. The shares of those companies are then in turn held by an offshore trust or foundation, making the beneficial owner of the shares an entity that is not connected to the person buying the property. The reason for this is often asset protection. This means that if the owner is sued by a creditor, the owner has no assets that can be seized. The person is not the owner because the property does not belong to them but to the trust or foundation.

The additional benefit is that when the property is sold the buyer is saved the 5 per cent stamp duty, which makes the sale just that bit more attractive. Hence the seller is then able to sell his property more readily. The buyer will also like the added benefit of asset protection and anonymity afforded by the structure mentioned above. The anonymity is achieved through the owner's name never appearing on any documentation such as the UK Land Registry. This is another secret of the rich for avoiding stamp duty and protecting their assets.

Jason Russell is a consultant with The Tax Experts, a UK based firm that specialises in UK Tax Avoidance Schemes and Tax Planning. The firm demonstrates to clients on a daily basis that tax in the UK is totally optional and is legal to avoid. The firm offers income tax planning, capital gains tax advice, corporate tax planning, inheritance tax planning and avoiding stamp duty and land taxes on house purchases and commercial properties. To learn more about The Tax Experts please visit http://www.thetaxexperts.co.uk.

Source: EzineArticles
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