The tax man is plugging a £35 million tax stamp duty loophole by taking 1,200 alleged tax cheating homebuyers to court.
HM Revenue & Customs reckons the property buyers have evaded the tax by signing up for a dubious tax scheme that advisers claim saves money.
Dozens of firms are splitting alleged tax savings with property buyers – despite warnings from the government, HMRC and lawyers that the strategy does not work.
Unfortunately, property buyers who have submitted the claims will be left paying the price of trying to cheat the tax man if HMRC wins in court, even if they have handed over significant fees to advisers.
They face paying interest and surcharges that could double the amount of tax they allegedly saved – on top of any court costs defending their case.
Each property buyer owes an average of £30,000 plus interest and penalties, says the tax man.
They ‘saved’ the tax by stating on stamp duty returns that a separate deal for fixtures and fittings cut the property price and reduced the amount of stamp duty due by pushing the value below the stamp duty threshold or down in to a lower tax banding.
In some cases, property was bought by limited companies that were later sold. Buying shares in a company is charged at a lower stamp duty rate than buying the property directly.
An HMRC spokesperson said: “The schemes rely on an interpretation of law that produces an outcome different from that envisaged when the law was enacted, and that HMRC does not accept.”
The government is looking to close the loophole with new laws already announced by Chancellor George Osborne.
Many law firms have also warned stamp duty mitigation schemes are ineffective.
Nevertheless, dozens of firms are advertising ‘100 per cent tax proof’ schemes online – but none can provide incontrovertible proof the scheme is legal without going to the courts. Some even allege the schemes can still successfully operate despite the chancellor’s impending law change.
