Can stamp duty be avoided?

Stamp duty land tax (SDLT) is owed on all UK property and land sales above a certain value. It's payable on both commercial and residential properties, whether bought with a mortgage or outright. The past few years have seen increases in stamp duty for businesses, which can prove very costly.

Under certain circumstances, you can legitimately avoid stamp duty. Stamp duty relief is sometimes available in the following scenarios:

• you are a first-time buyer
• you are an individual transferring property as a gift to a partner
• you are transferring property from a partnership to a limited company

To avoid costly penalties, it's essential to understand the complexities of stamp duty regulations.

For landlords, property investors and companies, it may be possible to reduce stamp duty liability by choosing the right business structure and transferring property in the most tax-efficient way. This is where the advice of a good accountant, such as Walji Accountants, can be very valuable. If you have concerns regarding your stamp duty liability, then get in touch to request a strategic consultation.

Before we proceed, it's important to note that there is no such thing as "avoiding" stamp duty. HMRC impose hefty fines and interest on undisclosed property sales. But there are ways for businesses to legitimately reduce their SDLT liability.

In this blog post, we'll look at stamp duty rates for individuals and companies, some of the SDLT reliefs available, and discuss how best to transfer property to a company for tax-saving purposes.

For clarity, we'll concentrate on purchasing residential property, but be aware that SDLT on commercial or mixed-use property is charged differently.

*All figures quoted are correct as of February 2023*

How is stamp duty land tax applied?

Stamp Duty Land Tax (SDLT) is calculated on the money that exchanges hands from a property purchase, known as the "chargeable consideration" by tax professionals. This is the price paid for the property (not the market value), and can include other costs, such as fixtures, fittings, and VAT.

How do you pay stamp duty?

If you are using the services of a professional, such as a solicitor, they will usually file a return to HMRC on your behalf. If not, it is your responsibility to inform HMRC and pay stamp duty. Your accountant can assist you with this to avoid common mistakes.

Can you legitimately avoid stamp duty?

It's understandable that many individuals and business owners wish to avoid paying stamp duty, and, as with all tax law, exemptions do apply under certain circumstances.

HMRC are naturally very strict on who is eligible for stamp duty relief, so it is very important that you understand the complexities of the law. Always ask an accountant for help if you are unsure of the rules, as you could incur costly interest and penalties should you make an error.

Stamp duty land tax rates for individuals

Stamp duty is due on the purchase of residential properties worth £250,000 or more. The rates increase as the price of the property increases. While it's not possible to "avoid" stamp duty, relief is available to first-time buyers.

As a first-time buyer, you are eligible for stamp duty relief on a property purchase up to £495,000. You pay 5% on property between £495,000 and £695,000. The standard rate of stamp duty applies to properties above £695,000.

Find out the current residential stamp duty rates here.

Additional properties

If you purchase a second property, you must pay a stamp duty surcharge of 3%. This increases if you buy additional property, up to 15% for properties exceeding £1.5m. It is known as the "higher rate" of stamp duty.

When buying a new property intended as your main residence, you may be subject to the 3% stamp duty surcharge if the sale of your previous main residence has yet to complete, as you are technically the owner of two properties.

However, it is usually possible to get a stamp duty refund within a certain time period.

For more information about the current higher rates of stamp duty you can find them here.

Stamp duty for companies

Limited companies must pay the higher rate of stamp duty on all residential property purchases exceeding £40,000 (regardless of whether it is a first property).

For properties exceeding £500,000 in value, there is a flat rate of 15%, which supersedes the higher rate if all of the conditions are met. This is a measure designed by the government to reverse the growth of the buy-to-let market and increase housing stock for individuals.

Do you pay stamp duty when transferring property to a company?

For many buy-to-let landlords, property developers and investors, it makes sense to purchase property through a partnership or limited company to reduce their income tax and Capital Gains Tax liability.

But as an individual property owner looking to register as a company, it's very important to consider your stamp duty bill. When you register as a limited company, you become a separate legal entity, so a property transfer between you and your company would trigger a charge to stamp duty.

Given the 3% surcharge and 15% flat rate of SDLT, the stamp duty costs can be a stumbling block if trying to transfer a significant portfolio.

Can you avoid stamp duty when transferring property? 

As in all tax matters, there are SDLT reliefs available to companies.

It’s possible to avoid stamp duty completely on the transfer of your properties to a company if: 

• you run your property business in partnership with, for example, your spouse, other family members or third parties, and 
• you are all actively engaged in the business to some extent. 

This is due to provisions in the legislation that apply only to partnerships incorporating a new limited company with the same shareholding. Essentially this provision reduces the stamp duty payable if the shareholdings in the new company mirror the partnership split. 

For example, if you have run an active partnership with your spouse in a 50:50 ratio and the new company is also structured in a 50:50 equity split, then no stamp duty is due to be paid. 

If the new shareholding in the company is not exactly the same, but both partners have some shareholding at least, then the stamp duty calculation will still produce a saving compared to the headline amount due. 

Three factors are important here to demonstrate a bona fide partnership arrangement: 

• you have an established partnership that has been actively trading in property letting 
• that partnership can be demonstrated through paperwork such as a partnership agreement and 
• the partnership is registered with HMRC and submits annual partnership tax returns. 

What if I own the properties in my sole name rather than a partnership? 

If your property portfolio is solely in your name, then unfortunately, you do not qualify for SDLT relief on transfers from a partnership to a company. 

There may be other reliefs that could help mitigate the amount of stamp duty payable, which would still make it worthwhile to move your property portfolio to a company. It is wise to consult with your accountant to find any legitimate way to reduce your SDLT liability in these circumstances.

Alternatively, you may consider establishing a partnership with a view to future SDLT relief. In this case, a partnership with your spouse would make the most sense to avoid paying Capital Gains Tax (CGT) on selling your share in the portfolio.

Get property tax advice from Walji Accountants today

As accountants, the Walji team naturally has a deep understanding of stamp duty legislation and other property tax. Far from just keeping you compliant, we go a step further.

We can offer valuable guidance on the most valuable business structure for your property ventures and help you to make plans to reduce your tax liability. We will be your trusted partner and actively seek ways to make your property business more profitable. To apply for a callback, please fill in our contact form and we'll be sure to get back to you.

Learn more about being in the property business here:

- What business structure should I use for my property business?

- How will Making Tax Digital affect landlords?

- Is it tax efficient to buy property through a company?

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