If you have a pack of playing cards printed before 1960, have a look at the Ace of Spades – you will find it has a “stamp” on it recording the fact that the manufacturer has paid the Stamp Duty on the cards. Stamp Duty used to be charged on all sorts of things – medicine bottles, perfume, hats, and gloves. It was introduced in 1694, as a temporary tax to pay for the war against France (like income tax, which was introduced in 1799, with a promise it would be scrapped as soon as Napoleon had been defeated!).
These days Stamp Duty only apples to sales of shares, and is only charged at one half of one percent, but in 2003, it spawned a nasty child, called Stamp Duty Land Tax (SDLT).
As the name implies, SDLT is charged on land transactions, and the rate of tax (payable by the purchaser) depends on the amount paid for the land:
Generally, SDLT presents few problems, but there are some odd quirks to watch out for:
Transfers to a company
When land is transferred to a company, even if it is transferred for no payment, SDLT is charged on the market value of the land, in either of the following situations:
Where a property is mortgaged, if it (or a share in it) is gifted to another person, they are deemed to take over their share of the mortgage, and that is “valuable consideration” for SDLT purposes. For example, if Mr A owns a buy to let property worth £400,000, on which there is a mortgage of £300,000, and he gives a half share in the property to his wife, there is no CGT to pay because gifts between spouses are free of CGT, but his wife will have to pay SDLT. Having taken over half the mortgage (£150,000), she is deemed to have “paid” that for her half share in the house, and SDLT at 1% (£1,500) is due.
This is a typical piece of anti-avoidance legislation, in that it is designed to attack one form of abuse, but has the side effect of producing unfair results.
First, the abuse. If I want to buy a house costing £300,000, the SDLT will be £9,000 (at the 3% rate). But what if the vendor sells me the house for £250,000 (SDLT at 1% of £2,500), and sells the garden to my wife for £50,000 (no SDLT as it is below the threshold of £125,000)?
Unfortunately, because these two transactions are “linked” – they are part of the same bargain and the two purchasers are “connected” with each other – the rule says you must add the consideration for each transaction together, and then everyone must pay SDLT at the rate for the total – so in this case I pay £7,500 (3%) and my wife pays £1,500 (also at 3%).
That, I suppose, is fair enough, as the splitting of the sale was merely a trick to avoid SDLT, but consider this case:
Jack and Jill each own a flat, and by coincidence their flats are each worth exactly the same - £200,000. Jack’s flat is in Manchester, and Jill’s in Birmingham. They have never met, but they work for the same large organisation. One day, Jack gets transferred to Birmingham, and Jill gets a transfer to Manchester. They advertise their flats in the company magazine, and eventually agree to do a straight swap. For SDLT purposes, the “consideration” in each case is the value of the house swapped, so they each pay SDLT of £2,000 (the 1% rate).
If the facts were exactly the same, except that Jack was married to Jill’s sister, Jack and Jill would be “connected” and so the two transactions would be “linked”. This in turn means that the total consideration for the two transactions must be used to decide the rate of SDLT. The total is £400,000, which is in the 3% band, so Jack and Jill each have to pay SDLT of £6,000
(£200,000 at 3%).
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