Hidden in plain sight

9th April 2019

I recently met a property trader / developer.  He’s been around for decades, and he is second, if not third, generation real estate family.

He knows all the movers and shakers in London.  We have done business together, though inadvertently via an intermediary.

At the time, he purchased a large freehold house in Ealing.  The garden was literally the size of a football stadium.  There was massive development potential both on the property and in the rear.  He purchased the property for £1.7M, and paid over £117,750 in stamp duty, which is at the lower end of the scale.

There’s not a lot he doesn’t know about property, and therefore his ears pricked up when I told him he should not have paid stamp duty on the transaction, especially if he is trading the deal on, which is his aim.

He did have some interaction with a company which specialises in saving stamp duty.  His lawyer would have none of it.

You do not need a scheme.  Any scheme whether to do with stamp duty or tax in essence is a ticking time bomb.

The powers the HMRC have are formidable.  Even if you comply with the letter of the law, you may not so in spirit.  They can create new legislation and apply it retrospectively, this means what was legal now becomes illegal.

However, if one does their research properly there are some exceptional gems out there which are perfectly legal (and within the spirit of the law) and can be used to enhance your property investment; both in terms of the taxation on the profit and in terms of stamp duty.  With the current levels of stamp duty, this can represent a massive saving of 10% if the property is above £1M.

We have successfully executed transactions where no stamp duty has been paid.  The lawyers were very resistant to the idea, but they gave way once we showed them the legislation.  However, the onus of proof was upon us and not them.

I had a similar experience some years ago, when a client was buying a freehold property with ten studios in it.  Under the old regime of stamp duty this attracted a flat 4% rate.  The purchase price was £1.1M, this meant the stamp duty payable was £44K – according to the solicitor.

However, as the property contains ten studios you have something which is known as multiple dwelling relief.  Under this relief, the rate applicable to the whole building is what is applicable to the average price of one unit.  In other words each studio equates to £110,000, and therefore attracts a rate of actually zero percent.  Although, there is a proviso a minimum rate of 1% must be applied.  Therefore, the applicable rate on the whole transaction is only £11K as opposed to £44K.  We saved our client £33K, by pointing this out to the lawyer.

The lawyer pushed back on this, he was trying save face in front of the client.  He then reluctantly gave way, after we showed him examples from the HMRC website.

This relief is an interesting one, and can still be claimed in the current environment.  It remains unaffected despite the two rounds of hikes.

These are examples of some of the interesting tools out there which can be used in your property transactions.  They are not always obvious to the professionals used, but come from insiders who are in the trade.  A property transaction requires a 360 degree view point, even a small one needs planning and thought.

Suresh Vagjiani

Suresh Vagjiani
Suresh Vagjiani
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