How to cut down on stamp duty land tax

Stamp duty can make buying a house just that little bit too daunting. Read this to see how it shouldn’t put you off your dream home.

Stamp duty  was originally the payment made to the official of the town for a physical stamp that had to be attached to or stamped into a document to prove that the document was legally effective. Even though stamp duty still exists, a physical stamp is no longer needed. Stamp duty in the UK is split into two categories, Stamp duty reserve tax (SDRT) which is paid on the transfer of shares, securities, and bonds among other things, and Stamp duty Land tax (SDLT) which is paid on the transfer of land and buildings. The latter is the one that most people will be familiar with as all houses that are sold will be eligible.

Stamp duty land tax is not technically a stamp duty but more a form of self-assessed transfer tax and therefore there are thresholds  which are listed below (accurate as of October 2012)

Up to £125,000:  0%
Over £125,000 to £250,000:  1%
Over £250,000 to £500,000:  3%
Over £500,000 to £1 million:  4%
Over £1 million to £2 million:  5%
Over £2 million:  7%
Over £2 million when purchased by
certain persons e.g corporate bodies:  15%

One important thing to remember with SDLT is that if the value is above a certain threshold, even by very little, The tax is charged to the whole value. For instance if a house is bought for £126,000 then the SDLT will be to the sum of £1,260. This makes house prices and negotiations very important and will give the buyer at certain price points, for instance £250,000, a much more bargaining power. Remember to keep the thresholds in mind when looking at houses and in negotiations a difference of only a few pounds between £499,995 and £500,050 will increase your SDLT by over £3,300.

First time buyers have an exemption of up to £250,000 before they have to start paying SDLT. If you are a first time buyer this threshold is very important.

What happens if the seller will not drop below a price point?

Using chattels will help get the price decrease further. Chattels are the personal property that exists on the land. Rarely will a house be bought completely gutted of any fixtures and fittings and seeing as SDLT is a land tax and not a tax on personal property then this can be exploited. If the chattels of a property equate to £2000 and you are paying £126,000 for the property and the chattels then this will push the value of the property below £125,000 and would therefore be exempt from SDLT. Items fall into two categories, fixtures and fittings  . Fixtures are things that a fixed to the land and are therefore not exempt from stamp duty. For example, bricks that have been made into a house are fixtures, a pile of bricks underneath a tarpaulin behind the garage are not. As a general rule, items that would normally be removed by the seller are considered fittings and are therefore exempt. Fixtures would, in all likeliness, include, stoves, central heating, cupboards, showers, some baths. Fittings could include, Beds, wardrobes, fridges, some carpets, washing machines, etc. This categorisation must be taken seriously, Including something that is a fixture is tax evasion and a very serious crime. If in any doubt either err on the side of caution or consult a professional.

With the chattels now identified, how much should be attributed to each item?

Chattels must be valued at what the open market would pay and not the value when new or if replaced. If items are proving difficult to valuate, keep in mind that an auction house can be asked to carry out a valuation for a fee. This will prove helpful if the HMRC investigate. Remember, buying a house and chattels then immediately gifting the chattels back to the original seller, or buying chattels that are actually on hire purchase or are otherwise not the property of the seller, are both forms of tax evasion. Properties around the £250,000 mark are often investigated by the HRMC as it can be a significant form of lost revenue so be careful.

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