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Her Majesties Revenue & Customs is set to mount a court challenge to determine the legality, or otherwise, of stamp duty tax avoidance schemes.

Central to the challenge will be the use of limited companies to buy properties, and then sell them to individuals – something which does appear to be completely legal.

Essentially, the purchaser sets up a Special Purpose Vehicle, a company or a trust with a property as its sole asset. The purchaser then buys shares in the company and is subjected to a tax rate of just 0.5%.

There are many companies offering stamp duty tax avoidance: a Google search yielded over 3,200 results.

The taxman’s move follows this year’s Budget when Chancellor George Osborne announced that he would be clamping down on stamp duty avoidance, whilst law firms have also warned that HMRC is on the prowl.

HMRC estimates the tax avoidance schemes have cost it millions in lost revenue. It is investigating 1,200 people it suspects of having underpaid stamp duty by a collective total of £35m, whilst it will also go after others who have avoided the tax altogether.

The many schemes that claim to legally exploit stamp duty loopholes frequently charge fees of around half the amount that would have been paid in tax.

It is thought that a number of property investors have set up a limited liability company to buy the property to sell back to the individual.

An HMRC spokesperson said: “The schemes rely on an interpretation of law that produces an outcome different from that envisaged when the law was enacted, and that HMRC does not accept.”

Many Law firms have also warned against avoidance schemes of Stamp Duty Land Tax (SDLT).

Ian Montgomery, a solicitor at Boodle Hatfield, said: “There is a growing belief that it is possible to avoid paying stamp duty on the purchase of a property or land, but unless particularly aggressive tax planning is undertaken that is just not the case. It is a common misconception that it is possible to purchase a property using a company and avoid stamp duty. When a property is purchased through a company, whether based offshore or in the UK, it pays the same rate as if it were an individual. SDLT may be avoided by future purchasers when the company decides to sell the property. This is done by the owner selling shares in the company rather than the property itself, but SDLT will be paid on the initial purchase.”

Stamp duty on the purchase of shares stands at 0.5%, rather than the higher rate levied on property. If the company is based offshore, the purchase of shares is exempt from stamp duty entirely.

People who try to reduce stamp duty by paying separately for fixtures and fittings may have to prove to the taxman that what they paid for these assets did not exceed their true value

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Her Majesty’s Revenue & Customs (HMRC) is mounting a legal challenge to stamp duty tax avoidance schemes set up for home buyers.

Central to George Osbourne and the Taxman’s challenge will be the use of private limited companies to buy properties, and then sell them to individuals – something which is currently completely legal.

Essentially, the purchaser sets up a Special Purpose Vehicle, (SPV), a company or a trust with a property as its sole asset. The purchaser then buys shares in the company and is subjected to a tax rate of just 0.5%.

A Google search yielded over 3,200 results of companies offering stamp duty tax avoidance.

HMRC’s move follows this year’s Budget when Chancellor George Osborne announced that he would be clamping down on stamp duty avoidance, whilst law firms have also warned that the Taxman is on the prowl.

HMRC estimates the tax avoidance schemes have cost it millions in lost UK revenue.

It is investigating 1,200 people it suspects of having underpaid stamp duty by a collective total of £35 Million (GBP), whilst it will also go after others who have avoided the tax altogether.

Thousands of websites offer schemes that claim to legally exploit stamp duty loopholes. The schemes frequently charge fees of around half the amount that would have been paid in tax.

Loopholes include the well-known dodge of paying an artificially high price for fixtures and fittings so that the price of the property itself falls below a certain threshold; or setting up a limited liability company to buy the property to sell back to the individual.

An HMRC spokesperson said: “The schemes rely on an interpretation of law that produces an outcome different from that envisaged when the law was enacted, and that HMRC does not accept.”

Ian Montgomery, solicitor at Law firm Boodle Hatfield, said: “There is a growing belief that it is possible to avoid paying stamp duty on the purchase of a property or land, but unless particularly aggressive tax planning is undertaken that is just not the case. It is a common misconception that it is possible to purchase a property using a company and avoid stamp duty. When a property is purchased through a company, whether based offshore or in the UK, it pays the same rate as if it were an individual. SDLT may be avoided by future purchasers when the company decides to sell the property. This is done by the owner selling shares in the company rather than the property itself, but SDLT will be paid on the initial purchase.”

Stamp duty on the purchase of shares stands at 0.5%, rather than the higher rate levied on property. If the company is based offshore, the purchase of shares is exempt from stamp duty entirely. So, on a residential property valued at £2m, the purchaser could thus save £90,000 from purchasing the shares in a UK company holding the property as opposed to purchasing the property direct.

People who try to reduce stamp duty by paying separately for fixtures and fittings may have to prove to the taxman that what they paid for these assets did not exceed their true value.

UK Households will be financially squeezed for the next decade according to a report by the Institute for Fiscal Studies (IFS)

UK households are already suffering one of the worst attacks on their finances since the Second World War and that the impact of the Great Recession is only now being felt.

The report warned householders that they will continue to suffer from the harsh spending cuts introduced by the UK’s Con-Dem Government for at least the next decade.

The IFS, which specialises in the UK’s public finances, said the cuts will result in greater inequality and rising child poverty, with those on lowest incomes to suffer the most. Families with children are being hit harder than others due to welfare changes – such as the freezing of child benefit.

 It highlighted that in the last year, earnings, state benefits and tax credits had all fallen in real terms.

Child poverty is measured by the percentage of children in households where income is less than 60% of the average for the UK. Child poverty fell from 25% in 2000 to 20% a decade later, according to the study.

The survey also points out that families have seen the biggest fall in living standards in 30 years in the last financial year.

Robert Joyce, a research economist at IFS and a contributor to the report, said: “The current economic downturn began more than three years ago, and may seem like old news. “But, as in other developed countries, the most severe consequences of the recession on UK living standards have only just begun to be felt, and will continue to be felt for years to come.”

Not only are the spending cuts having a massive impact on household budgets but many believe they could push the economy back into recession.

 However, Chancellor George Osborne continues to defend the cuts and he has deemed them necessary and fair in order to bring the budget deficit down.

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