PURCHASER GETS UNWELCOME STAMP DUTY SURPRISE?
With all the discussion, commentary and complaints about Stamp Duty Land Tax or ‘Stamp Duty’ as it is affectionately known, it should be a topic on which property purchasers are well informed.
However, more often than not the coverage and commentary on Stamp Duty focuses mainly on the effect it is having on the fluidity of the property market, the obstacle it poses to first time buyers or even the mega sums it generates from the super-rich when they buy exclusive London properties. Perhaps it is understandable that the real detail of this tax is rarely discussed. Since its introduction in 2003, it has seen many new complexities, special cases, reliefs and most recently surcharges. As a result, it is no longer possible for a property lawyer to simply ask his or her client if the property is residential or commercial, in order to determine the amount of Stamp Duty payable on completion.
Relevant questions lawyers today must ask include:
- Is the property a second home? or a buy to let?
- Is the intention to buy the property into a company?
- What about temporarily owning two properties when moving home?
- Is the property bought by parents for (or with) children?
- Furnished holiday lets?
It’s enough to make anyone’s head hurt and clients can be forgiven for not being experts on the ever changing subject of tax law.
So significant are the different stamp duty rates depending on transaction type that some clients may not even embark on a property purchase if they knew the real cost that would bite at completion.
For example, a French citizen comes to London to buy an expensive property priced at £5 million. He tells his property lawyer that he has no other property in the UK (or France), is not planning to rent the property and is not buying it into a company. On the face of it standard stamp duty rates apply on a sliding scale with the top rate of 12% applying to the consideration above £1,500,000. This would give a stamp duty charge of £513,750.
However, an important piece of information is missing, namely that the French citizen also owns a house in Spain. This makes his London purchase an ‘additional property’ and the additional 3% surcharge applies. The true stamp duty cost is therefore £663,750; an increase of £150,000.
The moral of the story is that to avoid this information coming to light late in a transaction property and tax lawyers need to work together from the outset to ensure the client doesn’t get unwanted surprises late in the day.