Stamp Duty Land Tax - "The Tax We Love To Hate"
Stamp Duty Land Tax (“SDLT”) is the curse of any house purchase transaction. Invariably it is the largest expense any buyer will have to bear yet its payment cannot be avoided. It is a particular burden for buyers in the south east of the country, where property prices have been spiralling upwards for a number of years now. Indeed it was for this reason that many had hoped the Chancellor would in his recent budget increase the threshold for paying SDLT but unfortunately no such concession was forthcoming.
SDLT thresholds therefore remain at the following levels:
£0-£125,000 - no duty payable
£125,001-£250,000 - duty charged at 1% of the full purchase price
£250,001-£500,000 – duty charged at 3% of the full purchase price
Over £500,000 - duty charged at 4% of the purchase price
Where SDLT is payable, it is assessed at the relevant rate on the full purchase price payable.
SDLT affects sellers as well as buyers, to the extent that someone trying to sell for, say, £255,000 could find that a buyer is not prepared to pay SDLT at 3% on the £255,000 and as such will only offer to pay £250,000 for the property. In such cases a seller might offer to pay the difference between SDLT at 3% as opposed to 1%, just so as to achieve the maximum sale price for the property.
The most common way of attempting to mitigate SDLT where the sale price is just over the £250,000 or £500,000 threshold is to apportion the purchase price as between the property itself (at a price equivalent to the relevant threshold) with the “extra” monies being attributed to furnishings eg carpets curtains and “white goods”. A seller and buyer should however be careful to ensure that the price attributed to the furnishings truly reflects their second hand value at that time. Any attempt to artificially enhance their value could be considered to be tax evasion which is a criminal offence and, if investigated by the Revenue authorities, could result in heavy penalties for both the seller, the buyer and even their legal representatives (if it could be shown that they colluded in the tax evasion).
So, loathe it as we may, SDLT is a fact of life which we all have to accept on any house purchase transaction.
NB. In a previous article relating to Home Information Packs, it was stated that the Packs were due to be launched on the 1 June next, in spite of mounting pressure from property pressure groups upon the government to delay their implementation. It can now be confirmed that the Packs will definitely be introduced with effect from the 1 June. Accordingly any person considering selling in the foreseeable future would be well advised to speak with his estate agents and if appropriate ensure that his property is put on the market for sale before the launch date of the 1 June. Those persons who miss the deadline should nonetheless contact their solicitors who will be able to prepare the Packs for them in readiness for their putting their property on the market for sale.
Paul Grindrod
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