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December 2, 2012 8:38 pm
The number of schemes used to avoid stamp duty has doubled since the Treasury increased the rate for the UK’s most expensive homes in March, highlighting the extent of the challenge it faces in its high profile clampdown on tax avoidance.
Ten new stamp duty avoidance schemes were reported to Revenue & Customs during six months to November, double the number reported in the six months before March’s Budget, according to research from law firm Pinsent Masons.
The surge in new avoidance schemes is a response to the government’s increasing from 5 to 7 per cent the rate payable on houses worth more than £2m and introducing a 15 per cent charge on properties bought through companies.
The disregard for the rules is a blow to George Osborne, chancellor, who has been vociferous in his commitment to punish “morally repugnant” people who use loopholes to exploit weakness in the property tax system.
One of the new loopholes reported to HMRC involves housebuyers beating the 15 per cent charge by setting up offshore limited liability partnerships (LLP).
Under UK tax law, an LLP does not pay tax but its members do on transactions made through the partnership. Using an LLP means the housebuyer would pay the 7 per cent levy on purchase but avoid the 15 per cent for buying through a company. Shares in the LLP, rather than the house itself, could be sold to future buyers, thus avoiding stamp duty charges.
Jason Collins, head of tax, at Pinsent Masons, said the rise in avoidance schemes was a predictable response to the Treasury’s hard line on stamp duty avoidance. “Stamp duty adds thousands of pounds to the cost of property purchasers for individuals and families at all ends of the income scale. People are quite prepared to risk confrontation with HMRC if they can find a way to avoid it,” he said.
But in spite of the spate of new schemes, Mr Collins said the Treasury’s push to shut down the most popular avoidance loopholes had reduced the overall level of stamp duty avoidance.
The move to tax the country’s wealthiest property owners has been a cause of concern for the residential property industry, with many insiders warning of a backlash from overseas investors in the UK housing market.
Transactions in the properties worth more than £2m fell 25 per cent in the seven months to November compared with the same period a year earlier, according to Savills, the property consultancy.
“[The government] face a difficult balancing act between trying to close those schemes on the margin between tax avoidance and tax evasion and legislating in a way preserves London’s attractiveness as investment destination,” said Lucian Cook, director of residential research at Savills, the property consultancy.
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