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Don't forget the Stamp Duty

29 Jun 2010

Arguably the most famous and commonly recognised invention by the Dutch is the Compact Disc, The CD was revolutionary and affected peoples lives in many ways, much like another lesser know Dutch invention…Stamp Duty.

Stamp Duty was created by the Dutch in 1624 and first charged in the UK in 1694 by William and Mary. Much like Income Tax, which was introduced in 1799 to pay for the war against Napoleon, both Stamp Duty and Income Tax proved to be such a good source of revenue for the Government that they still remain today, in one form or another.

Stamp Duty was so successful that it remained even when its imposition brought about riots in the American colonies in 1765, most notably what became known as the ‘Boston Tea Party’.

Stamp Duty Today
On 1 December 2003 Stamp Duty was largely abolished in the UK, however, before everybody jumps for joy and contacts their solicitor for a rebate, Stamp Duty was immediately replaced by Stamp Duty Land Tax (SDLT). This was billed as a new transfer tax derived from stamp duty, applicable to all land transactions.

Stamp duty, in its various forms, is now the oldest tax administered by the Government and is most likely to be around for many more years to come, especially when you consider that SDLT generates roughly £6.4 billion in Revenue per annum, some 5% of net Revenue receipts.

As you would expect the new SDLT, as a derivative of Stamp Duty, has the same affect on the population of homeowners as the previous Stamp Duty did, except that SDLT is a self-assessed transfer tax.

Broadly speaking what this means today is that the Exchequer will receive between 1 & 4% of the purchase price of any property priced over £125,000- – no small amount when you consider that the average property price in the UK currently stands at about £186,000.

Current SDLT bands:
At present SDLT is assessed and charged on every property transaction, not simply the purchase of a property, where the consideration for the transaction as a whole falls between the following scales:

Under £125,000 = 0%

£125,001 – £250,000 = 1%

£250,0001 – £500,000 = 3%

Over £500,001 = 4%

Not just a tax on purchasing property
As SDLT is charged on all land transactions, it does not simply affect people who are buying property. Land transactions include any dealings where the ownership of property changes, and accordingly every transaction that amends the ownership of any section of land is subject to SDLT.

This means that if you are thinking of transferring the ownership of your property to a family member, SDLT must be considered. Your solicitor will be able to provide you with further guidance on SDLT and any liability.

Tax reduction
A legitimate exception to the payment of SDLT, as detailed above, is where the property lies in a disadvantaged area. Such properties are exempt from SDLT, although such exception only applies where the consideration falls below £150,000, effectively extending the nil rate band for these properties. It does, however, remain unaffected thereafter.

Not surprisingly, buyers are increasingly looking for ways to avoid paying SDLT, especially when the property they are purchasing marginally exceeds the £250,001 or £500,001 threshold. Problems therefore arise where less scrupulous people put selling parties under pressure to accept what the Revenue will construe as fraudulent acts. The most common example of reducing a prospective SDLT liability is by apportioning some of the purchase price to fixtures, fittings and contents that are being sold with the property. However, only an accurate and realistic attribution of these items is acceptable. Anything more than this is construed as a fraudulent act by the Revenue and could lead to tax avoidance allegations. It is worth checking with your solicitor before entering into any “deals” with the purchaser of any property, as some deals are not always as they first appear.

For further information on Stamp Duty Land Tax or any other property related issue contact Paul Illes on 0191 227 6798 or email paul.illes@hay-kilner.co.uk

Please note:
This article is not legal advice; it is intended to provide information of general interest about current legal issues. Please contact us to discuss how the contents of the article may affect you.