House prices have more than doubled since the current stamp duty thresholds were introduced, forcing home owners to pay billions of pounds in additional tax – and encouraging desperate bids to avoid the levy.
In 2000 the average house price was £102,000 and HM Revenue & Customs collected £2.2bn in stamp duty. Prices peaked during the property boom in 2007 and 2008, boosting stamp duty revenue to £6.7bn a year.
The figure dropped sharply when the crisis hit and property values plummeted. But with prices rising again, the average property price is now £250,000 – meaning many pay 3pc stamp duty of £7,500 or more.
HMRC is reaping the benefit, particularly as government schemes designed to boost lending fuel a market revival: the taxman took £4.9bn in stamp duty in 2012/13.
Anecdotal evidence suggests that buyers are looking for new ways to minimise their bills. This is because of the “cliff-edge” effect of stamp duty – when a threshold is breached, the higher rate applies to the whole sum. So if, for example, a property price increased by £1 to above the £250,000 threshold, the bill would leap from £2,500 to £7,500.
Keeping the price below £125,000 avoids all stamp duty. Buyers are charged 1pc on properties worth between £125,000 and £250,000, 3pc for properties between £250,001 and £500,000 and 4pc for between £500,001 and £1m. The tax jumps to 5pc for purchases between £1m and £2m and 7pc for more than £2m.
The Telegraph has heard of a case where a buyer submitted a bid of £490,000 for a property valued at £520,000 and offered to pay for the seller’s wedding to avoid paying an extra 1pc stamp duty. Other buyers are paying a reduced sum for the property and making a separate payment for fittings and fixtures – which are not liable for stamp duty.
This is allowed only if reasonable amounts are allocated. HMRC is wise to people abusing the system and paying £10,000 for curtains, for example.
However, if buyers flout these rules but write to HMRC and fully disclose their actions, the tax office has just nine months to force them to pay. Sources said the taxman had just 70 staff handling stamp duty issues.
Dozens of websites claim to save buyers thousands of pounds in stamp duty. In most cases their methods are illegal or unlikely to succeed, experts said.
The Government has already cracked down on a once-common avoidance scheme – transferring ownership to an offshore company. When the property was sold, the buyer purchased the company as a whole, cutting stamp duty from 5pc to just 0.5pc.
Mike Warburton, tax director at Grant Thornton, said stamp duty was “inherently unfair” but there were few schemes that could legitimately cut the tax.
The Government is facing growing pressure to reform stamp duty in next month’s Budget, particularly as the inheritance tax take rises alongside property price growth.