FOOL'S EYE VIEW
Stamping Down On Stamp Duty Fiddles

By Jane Mack (TMFJane)
October 14, 2003

Did you know that stamp duty on property is being replaced by a whole new tax in December? It'll be known, thrillingly, as Stamp Duty Land Tax (SDLT) which means we'll probably all continue to call it stamp duty because that's exactly what it will still be.

However, although the stamp duty charges on property will remain the same, the new tax will make it much harder for buyers to keep their costs down by inflating the value of any fixtures and fittings.

At the moment stamp duty is payable on most property purchases and it works on a sliding scale as follows:

Property Value         Duty Payable 

Up to £60,000                   nil
£60,001-£250,000                 1%
£250,001-£500,000                3%
Over £500,000                    4%

(In certain disadvantaged areas the threshold is up to £150,000 before stamp duty is payable).

The percentages won't be changing but the ability to fiddle with the purchase price will.

Let's say you want to buy a house which is being marketed at £255,000. The stamp duty payable on that would be a colossal £7,650 because anything over £250,000 attracts duty of 3% of the purchase price.

So you'd be tempted to persuade the seller to let you buy the house for £249,999 and pay him £5,001 for any fixtures and fittings such as carpets and curtains. You might even be tempted to over-value these fixtures and fittings to ensure that your stamp duty bill would only be £2,499.

As you might imagine, inflating the value of fixtures and fittings in order to avoid higher stamp duty charges has become quite a popular practice but the new legislation being introduced on 1st December will put a stop to it.

The Inland Revenue will be allowed to reclassify fixtures and fittings as part and parcel of the property if they think you're trying to pull this little trick. The penalties if you're caught 'miscalculating' the figures could result in fines and a formal investigation. And if they really want to get nasty you could be charged with fraudulent evasion of tax which, if found guilty, could mean prison for up to seven years!

You (or your conveyancing solicitor) will be required to officially inform the tax man once you've bought the house, file the proper paperwork, calculate how much SDLT is due and pay it all within 30 days. Interest is payable if you're late.

Bear in mind these new rules don't mean that you have to pay stamp duty on carpets. Buying such fixtures and fittings from the vendor is still allowed tax-free. The whole point of the legislation is simply to make sure people pay SDLT on the full market value of the property.

But if you're in the process of buying a house at the moment, you might want to aim for completion before the 1st of December!

Find out more about Homeowning.