by Steve Sims
8:22 AM, 28th June 2011, About 12 years ago
Paying stamp duty and capital gains tax on a property sale is definitely a case of one law for the rich and another for the not so rich.
Wealthy investors can get away with paying no property taxes when they sell a home by exploiting offshore tax rules.
The Treasury admits knowing of the ploy, but is powerless to act and government lawyers are having problems with coming up with a way to plug the loophole.
The LibDem’s Vince Cable reckons foreign investors are short-changing the taxman by around £750 million a year in stamp duty alone.
The scheme works by setting up an overseas company in a tax haven to buy a property.
The company pays stamp duty on the initial purchase at the going-rate, but then the wheeling and dealing starts.
Only UK residents and UK resident companies are liable for capital gains tax on the sale of an investment property, so any disposal of the property by the offshore company is exempt from UK capital gains tax.
Then comes the stamp duty saving – instead of selling the property, the offshore company is sold to the buyer with the transfer of ownership including the property. Instead of paying stamp duty on the market value of the property, HM Revenue and Customs collects nothing for the Treasury coffers.
The government wants to stem the flood of millions in unpaid tax but is toothless.
Even if stamp duty was switched so the seller pays the stamp duty instead of the buyer, the tax man has no jurisdiction to send a demand for the cash to a company based offshore and the UK courts have no territorial jurisdiction over non-UK companies or individuals.
Meanwhile, not so wealthy landlords in the UK are paying tax at 18% or 28% or any gains in the value of their buy to let property.