Stamp Duty Mitigation is also called Stamp Duty Land Tax (SDLT) Planning. It involves the use of a tax law prevalent in the United Kingdom to reduce the amount of SDLT that has to be paid to HMRC (HM Revenue and Customs). The stamp duty land tax is to be paid for the purchase of residential, commercial, and land exceeding amounts of £250,000. The SDLT tax planning was initially introduced with a view to assist high net worth clients and companies that were transacting in millions in land and property deals in England and Wales. However, over several years now, the clients making purchases above £250,000 are eligible to utilise this service.
SDLT is not a progressive tax. A percentage value is applied as tax for the whole purchase value. Typically, a house purchased at £250,000 attracts a tax of 1% or £2500. For amounts over £1000,000, the current tax 5%.
Tax planning is done by using the tax laws in such a manner that the tax liabilities for the taxpayers are minimised. This will mean the buyers will mitigate the stamp duty payable to the HMRC. It is legal and should not be confused with tax evasion which is illegal. If the buyer has to pay the normal stamp duty, it is a huge financial burden and further increases the costs. For the HMRC, on the contrary, a high level of inflation in house prices and increased transaction amounts mean an increase in revenue. With the help of a knowledgeable tax expert’s advice, up to 100% of the stamp duty tax can be mitigated.
The process is straightforward and safe. Sometimes insurance is included in the deal. At other times, they are offered insurance options with low premiums. This insurance is used to pay off legal fees in the event of a successful challenge from the tax office. The SDLT planning can be implemented after exchange of contracts but before the completion of the transaction.
However, The HMRC has the right to challenge the non-payment of stamp duty on the basis of the mitigation schemes that they believe are not robust and legal.
Being a very specialised area, only a few tax consultants and members of the bar in the UK practice tax planning. Similar to legislative systems in many countries of the world, there exist different interpretations of the law. Only specialised and expert tax consultants and qualified experienced barristers can work within the boundary of what is legal and financially advantageous and provide relevant advice to the taxpayers. It is therefore important that a qualified and experienced tax consultant be contacted for the purpose of Stamp Duty Mitigation. Many solicitors provide free consultations to clients to choose the best strategy depending on the type of purchase that is made.
It is a good idea to keep in mind a the following general points before choosing a strategy as suggested by the solicitor:
• The particular scheme should have been in place and running for a reasonable period of time.
• The strategy should offer substantial savings.
• The scheme should be fully compliant to all requirements of the HMRC and should be completely transparent.
• The fees is fully repayable in case of a successful challenge from HMRC.
The number of solicitors specialising in Stamp Duty Mitigation has grown and so has the awareness. Note however that using a solicitor unfamiliar with the planning is likely to increase the chances of challenge or failure but in the same breath they are unlikely to want to recommend this course of action or agree to take on the planning.