Press Article
FINANCIAL TIMES - March 24, 2010
Stamp duty relief seen as open to abuse
By Tanya Powley
The government’s definition of what constitutes a first-time buyer for the stamp duty relief for properties under £250,000 has been criticised by mortgage and tax experts as too restrictive and difficult to police.
Alistair Darling, chancellor, announced on Wednesday that it would scrap stamp duty for first-time buyers of homes up to £250,000 for the next two years. The decision will be funded by a for homes of more than £1m which will take effect in April 2011.
According to HMRC, to qualify for the relief the buyer must not have previously “acquired a major interest ... in residential property”. That also includes previous foreign property purchases.
The first-time buyer definition also rules out companies, partnerships or trustees – therefore parents looking to set up a trust to own a property for their children would not be allowed.
It is not clear whether a person who has inherited a property would be considered a first-time buyer.
“The rules are terribly restrictive,” said Patrick Stevens, tax partner at Ernst & Young. “There are going to be lots of complaints about the limitations.”
The Council of Mortgage Lenders (CML) said under its own definition first-time buyers typically included a high proportion of “returners” who had previously owned property but no longer did so. By the HMRC’s rules, these first-time buyers would be exempt from the relief.
“What sounds like a straightforward stamp duty holiday will actually have a lot of hidden complications, particularly in relation to the compliance,” said Caroline Bevan, director at PwC.
Karen Campbell, head of stamp taxes at Grant Thornton, said the relief was likely immediately to fall into difficulty as there was little clarity about how to establish whether a person was a first-time buyer, which could encourage abuse.
“For example, there is currently scope for a couple that co-habit to assign the ownership of a new house to the partner who is a first-time buyer, consequently avoiding stamp-duty land tax,” she said.
Ms Campbell said a similar measure in the US led to “mass exploitation” of the relief and substantial costs to the government.
The Revenue has not yet made it clear who will monitor the relief. It is expected the task may fall upon conveyancing solicitors who are currently responsible for levying the tax.
Experts suggest it will be the buyer’s responsibility to declare whether they are a first-time buyer – this could then be verified by Land Registry data.
“It seems obvious ... some people ... will try to cheat the system,” said Ray Boulger of John Charcol, the mortgage broker. “It is likely to bring about both avoidance and evasion. It would be easier to open the relief to all buyers.”
Mr Boulger said it was possible with some lenders to arrange the purchase on the basis that there was only one name on the property deeds – for example, the first-time buyer – but two names on the mortgage.
Property experts warned the stamp duty relief would not resolve the main problem for first-time buyers – access to mortgages and funding. “If first-time buyers can’t borrow the money they need, then they can’t take advantage of the stamp duty relief,” said Ms Bevan.
Jo Eccles, director of Sourcing Property, the buying agent, said the increase in the stamp duty limit would not have an impact on London’s first-time buyers. “They are struggling to raise the 25 per cent cash deposit now required to purchase a property with a cheap mortgage rate, so access to mortgages and funding is what is required to really make a difference.”