Stamp Duty Shock

I am going to do a short series of posts on the potential implications of the Pre-budget report from Gordon Brown for those of us interested in houses, property and development but first I must alert you to the impact of a change of stance by the Revenue to the payment of Stamp Duty.

There has always been a general rule that ‘connected transactions’ that form a ‘single transaction’ can be charged tax as a ‘single transaction’ if the parts involved have been separated as a means to avoid or lower tax liability.

Apparently the finance Act 2004 included an item to stop landowners splitting up an area of development land into plots when selling to a developer in order to avoid a Stamp Duty liability arising.

This rule is now being imposed on investors who buy up blocks of houses for buy-to-let. Where previously Stamp Duty would be charged (if the individual prices came over the threshold) on each property separately; now the tax is going to be imposed on the overall purchase price.

E.g. if you bought 5 houses at £110,000 each you might think that since each one comes under £120,000 no tax would be payable. Wrong – now you could be charged on the overall price of £550,000, which of course comes in the 4% bracket and produces a liability of £22,000.

This of course can also hit those of us that assemble land or property for development. Individually each house or plot of land may give rise to no tax liability but together there may be a substantial charge.

If in any doubt raise the question with your accountant at an early stage before you commit to a purchase. After all if you take account of the full liability and there is still a good profit then great, push on and do the deals.

Stay tuned to Property Fortunes...