Stamp duty loophole investigated

Stamp duty avoidance schemes that claim to save homebuyers tens of thousands of pounds are under investigation by HM Revenue and Customs (HMRC).

Using concessions granted for Islamic mortgages, some tax websites claim there may be a legal way of avoiding the stamp duty land tax that adds £20,000 to the cost of buying a £500,000 property.

The schemes under investigation use rules intended for shariah mortgages, which must comply with Islamic principles forbidding the paying or receiving of interest. With a shariah mortgage, banks buy a property on behalf of a client, and receive rent rather than interest. At the end of the “lease”, ownership of the property is transferred to the client, but no stamp duty is paid, as the purchase has not been “substantially performed”.

A spokesman for the HMRC said: “We are aware of this scheme and are investigating its use. We are determined to ensure a fair and level playing field in which everyone pays the tax that parliament believes it has legislated for.”

Tax experts warned that any stamp duty loopholes are likely to be closed. “There is the very strong probability that the law will be changed so that their planning idea will be stopped,” said Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants.

Lakshmi Narain, tax director of Baker Tilly, said shariah mortgages were not intended to offer any tax advantage.