Welcome to Day 22 of our "31 days of property inspiration" throughout January 2013.
Today's post is by PT member, Stamp Duty Consultant, and Land Agent, Tim Coe.
8 Reasons Why A Stamp Duty Solution Could Be Right For You
It seems like we are taxed for virtually everything these days, yet we unquestionably accept it most of the time. One of the most insidious of all taxes is Stamp Duty Land Tax [SDLT], or simply ‘Stamp Duty’ as it more commonly referred to. It makes no difference who you are, or what reasons you have for investing in property or moving house, it clobbers all of us at a rate of between 1% and 7% of the purchase price, or even 15% in a very small number of unusual cases. You pay it before you get the keys to your property and you pay it in full from what is probably money that has already been taxed at least twice [Income Tax and N.I.]. I suppose we should be grateful there’s not VAT charged on it!
In recent years we’ve seen the rise of firms offering to reduce your SDLT liability in its entirety for a fee way less that the tax itself. The idea being everyone involved wins; the homebuyer has thousands of pounds in their back pocket and the firm providing the tax advice are rewarded for creating the tax saving strategy. No tax is paid on the property purchase but if an individual has thousands of pounds at their disposal and a new property they will probably soon be parted from their cash. The net result being that good old HMRC will still and up with this money but not before it has gone through the hands of very grateful businesses with all the obvious beneficial spin-offs of this alternative fiscal process.
Tax planning, as a concept, only really appeals to individuals who feel they have paid more than their fare share of tax [how ever much that is] or those who disagree with how the Government spend our taxes and have no desire to work hard and/or take business risks only to give those that were voted in further cash to squander.
Let’s take a look at a handful of reasons why this process could work for you. There are 1,001 reasons your mind could come up with if you’re looking for reasons NOT to do this, it’s not for everyone and never will be. Here are a mere 8 points why a Stamp Duty solution can work for you… but only if you want it to of course…
1. Because it Has Worked for Thousands of Others
2. HMRC Have Not Changed the Law [contrary to what you might have gleaned from the media]
3. Magnificent Savings
4. No Time Added to Your Conveyancing
5. It’s Completely Private
6. Because You Do Not Take Advice From Friends or Family
7. You Have Insurance Should it Ever Go Wrong
8. Why it is Not Too Good to be True
1. Because it Has Worked for Thousands of Others
We all love a bit of social proof don’t we? Whenever we spend any money on anything for the first time we like to know that we are going to receive value. Knowing others have been before us and been happy with their buying decision before we part with our cash is fundamental to us taking action a lot of the time. A whole Stamp Duty Land Tax planning industry exists and it wouldn't do if there were not willing participants to support it. Is not right for everybody though and it never will be but I estimate 2.7% of all house purchases utilise some form of SDLT saving method. You might feel like a guinea pig as you don’t know anyone else who has done it. You might also feel you’re trying something untested as you have not heard of it before. But fear not, any good Providers of these services will let you talk to others who have gone before you. Testimonials are on the increase in business so it shouldn’t be too difficult speaking to previous clients who have done this to gauge their experience. Then you can decide for yourself.
2. HMRC Have Not Changed the Law [contrary to what you might have gleaned from the media]
2012 seem to have been the year HMRC spoon fed the newspapers, The Times in particular, stories to deter anyone from engaging in all forms of tax planning. Tax Avoidance and Evasion appear to have been merged into the same thing and we are being encouraged by George Osborne to find those who employ this type of financial planning as ‘morally repugnant’. Totally hypocritical when his father in law uses tax shelters himself. Whatever you might think of these stories of ‘clamping down’ and hounding the ‘tax dodger’ HMRC has not amended section 45 [3] of the 2003 Finance Act which outlines the underlying principles of Sub-Sale Relief. This tax exemption is the fundamental principle creatively developed in a number of ways to give property buyers a tax advantage. No amount of scaremongering will change the fact that if HMRC were serious about stopping this form of tax planning all they need do is change the law. Surprisingly, this is something they have not done yet. It is far easier, faster and cheaper to talk-up how the world will end for you if you dare to explore these practices. Some will heed their advice wishing for a quiet life whilst others will base a decision on the hard facts, their disgust at high taxation and the common knowledge of HMRC’s diminishing resources. One could argue The Revenue’s latest attempts at putting people off, whilst they have been moderately effective, smack of desperation. When have we ever seen such remarkable behaviour from them previously? All that you read in the papers is NOT TRUE. The inaccuracies I've seen are incredible and journalists do not wish to be corrected. They are even frequently quoting out of date information. So until the Government change the laws the current forms of SDLT planning will continue on their perfectly legal forms.
3. Magnificent Savings
Would you not agree that of the times in your life when you are most in need of money is when you buy a new property? Receiving 46% - 64% of the Stamp Duty back three weeks after Completion is the net result of utilising a tax saving strategy for SDLT. The most modest property purchase of £270,000 will net you a Stamp Duty saving of £3,700. What could that buy you- carpets, curtain and decoration? A new fitted bathroom? Furniture? At £800,000 the savings are significant at £16,000. Even if you don't like the idea why not take the money and give it to a charity rather than give it to the Government? They'd be over the moon with a donation in the thousands of pounds and how good would it feel to help a good cause to that extent?
4. No Time Added to Your Conveyancing
How long do you think the extra work required to set up a tax saving on a property purchase will add to the conveyancing? 2 weeks? A month? The answer is that if you engage the right people from the outset, and avoid having to swap solicitor half way through the purchase, then not 1 second is added to the process. Additional work is required of course, but it is carried out in parallel to the standard conveyancing tasks and not added onto the end. You should not notice anything different to a standard purchase apart from some extra forms to sign at the start. After than you move through to Completion in the usual manner. There is one major difference at the end of the process though – approximately three weeks following Completion you’ll receive a hefty chunk of your Stamp Duty back [you pay it in full to your solicitor at the usual time and following registration at the Land Registry you receive your savings.]
5. It’s Completely Private
That's right, no one would ever know you'd made Stamp Duty savings [unless you chose to tell anyone of course]. Some individuals can become concerned of being named and shamed [Jimmy Carr example] and are fearful of the embarrassment it may bring. But the truth is that the arrangements are completely private and if you are not a public figure who is really going to be concerned with what you are doing? Surely everyone is more engrossed in their own financial concerns. The only people made aware are the solicitor and the tax planning Provider who conceived the tax structure being utilised. The vendor you're buying from, and their solicitor, would definitely not know. Why would they need to? These are your personal tax affairs we're talking about here. So long as you pay them the agreed price on the agreed day they will be happy. The same goes for a small handful of lenders who are twitchy about SDLT savings. I only know of two reasons why they'd disagree. The main one would be if that bank was owned by the tax payer. It wouldn't sit well with the general public to see a bank bailed out by the Government lending money to people to buy property who were side stepping the Stamp Duty. Therefore, these banks [like RBS] may warn against this to their borrowers. Secondly, a few years ago companies used to be the entity set up to create the sub-sale described point 2 above. One could argue that on the day of Completion the lender was drawing funds down to a company and not the borrower i.e. the person whose name appeared on the mortgage application form. That wouldn’t be right of course. But to give this some perspective, another person would argue against this scenario actually taking place. The reality is that all convenyancing processes and forms can be date stamped the same day in a solicitor’s office. When task A is carried out at 12.45pm and task B carried out at 12.50pm, or vice versa, is this irrelevant to anyone. At the end of that day the property is bought and all the conveyancing procedures have been met. It was a grey area one could argue, but not one that exists today as I can’t think of one Provider who still uses companies in their tax planning process. So I believe the lenders’ current reservations do not hold water.
6. You Do Not Take Advice From Friends or Family
This may sound strange but please bear with me. The amount of people I’ve seen who ignore the advice of a tax planning consultant and go with the guidance of a parent, work colleague or friend is incredible. Why would they do this unless they were merely looking for a reason not to go ahead as it didn’t sit well with them in the first place? These incorrect and passed on opinions generally start from a media article, mentioned above, and by the time they reach the ear of the one who actually wants the correct advice I’d liken it to a game I call Chinese Tax Whispers. This type of tax planning only works if the person considering it actually feels excited about saving money and is not terrified of what ‘might’ happen without any justification for these fears. It’s no good having 100 questions when there are not 100 answers. Yes, it is a complicated subject and rightly so, but there are approx. 20-30 questions that cover all anyone needs to know. If it then still doesn’t convince you then walk away, pay your Stamp Duty Land Tax and sleep well at night. No Provider should ever want to work with anxious clients. They keep calling with unwarranted questions and might even pull out half way through the process wasting everyone’s time. If anyone pressures you into this form of money saving then back off from them. The forward momentum has to come from the client in my opinion. It’s not like buying a kitchen and comparing the features and the prices. You probably haven’t bought tax planning before so it has to be a person with a certain level of financial sophistication to decide for themselves based on the overall proposition being laid out before them. If asking someone trusted and close to you is the way you’ll decide then forget it – it’s not for you. What does that person know to be able to give you precious advice apart from their conditioning? They’re not wrong, it’s just what they know. But just because they do not like the idea it could be costing you tens of thousands of pounds. Talk to an expert. Talk to four or five experts if need be but base your decision on what they say unless you’re the type of person who ignores a doctor and asks a KFC drive-through attendant why they are finding themselves short of breath when they wake up in the morning!
7. You Have Insurance Should it Ever Go Wrong
Tax planning by its very nature carries an element of risk. If not, it would definitely be too good to be true. However, when it comes to SDLT planning the track record is impressive. There have only ever been three First Tier Tax Tribunals [the only way HMRC can recover the unpaid tax] and the tax payer has won two [the DV3 case being one of them]. The Vardy case from 2012 was the first victory HMRC has had in a Stamp Duty case and the minor success was only achieved via a small technicality on company law. A set of accounts were not filed when they should have been and this was enough for the case not to stand up. But the important point here is the tax structure utilised to save the £230,000 odd of tax was robust enough to work under intense scrutinisation from HMRC and a court. If the people behind the tax plan had done what they were supposed to do i.e. filed the accounts, HMRC would have had another loss to their name and it would be 3-0 to the tax payer. But that’s the way it can work at times and to protect against situations such as this any good Provider of a Stamp Duty solution will build client fee insurance into his proposition. This means if they do not do what they say they will do [save you the tax] then you get your money back. Example:
Purchase price = £600,000
SDLT owed @ 4% = £24,000
Tax planning fee @ 2% = £12,000 inc. vat [this fee reduces your SDLT to zero]
Clients saving = £12,000
So here the insurance would give the £12,000 tax planning fee back to the client if HMRC proved the saving was not valid and the original tax had to be paid i.e. £24,000. So the client would take their original saving of £12,000 and receive their fees of £12,000 back and pay HMRC the £24,000. This is the worst case scenario. HMRC would charge interest on the outstanding amount at around 3% p.a. This interest is your risk and your only exposure. For some this is too much or a risk whereas for others this is a small risk given HMRC’s track record in clawing money back and given the thousands of people who have engaged in this money saving activity over the years. 4 years from the purchase is the longest HMRC may open an Enquiry in the transaction. Do not let anyone tell you otherwise. It is not 6 years [it used to be] and it is not 21 or 25 years…unless you have been negligent [i.e. done the tax work yourself without being qualified] or been fraudulent and operated outside the current tax legislation. Client fee insurance should run for 4 years and Lloyds of London is a name people are familiar with and an underwriter I’ve seen used commonly.
8. Why it is Not Too Good to be True?
For many reasons and I have a 6 minute video to explain why. Just because you have not been exposed to a money saving idea before does not mean there is anything wrong with it. Having a lifetime of being conditioned to pay the taxes asked of us has a funny effect when you discover a way to hit back. Well done for reading this far and if you wish to hear an answer to this watch the video:
You may be one of the many people who feels we need to tax to run the country and that we’re all in this together. I agree 100%. But I also do not feel it is that black and white. There is no right and wrong final ideal that we will all agree on here. But I hope you have opened up to the idea and at least realise it can work for you if you so desire.
About Tim:
Tim Coe
[Stamp Duty Land Tax consultant since 2007, Development Opportunity and Land Agent from 2004 and Personal Search Agent from 1999.]
For further reading you are cordially invited to claim your free booklet THE SCEPTIC’S GUIDE TO SAVING THOUSANDS IN STAMP DUTY WHEN BUYING PROPERTY WITHOUT BREAKING ONE SINGLE TAX LAW:
http://www.savestampduty.com