There is growing interest in exploring ways to avoid paying stamp duty (stamp duty land tax - SDLT) when purchasing a new home or land, but myths abound and HMRC is taking an increasingly dim view of the schemes being offered, usually via the internet, warns the law firm Boodle Hatfield.

It is increasingly common to hear about wealthy individuals buying property through companies, often located offshore, to avoid paying SDLT, perhaps fuelled by the increase earlier in the year of the SDLT rate to five per cent on properties valued over £1m.

Ian Montgomery, a solicitor specialising in tax at law firm Boodle Hatfield said: “There is a growing belief that it is possible to avoid paying SDLT on the purchase of a property or land, and unless aggressive tax planning is undertaken that is just not the case.

“It is a common misconception that it is possible to purchase a property using a company and avoid SDLT. When a property is purchased through a company, whether based offshore or in the UK, it pays the same rate of SDLT as if it where an individual. SDLT may be avoided by future purchasers when the company decides to sell the property. This is done by the owner selling shares in the company rather than the property itself, but SDLT will be paid on the initial purchase.”

Stamp duty on the purchase of shares stands at 0.5 per cent, rather than the four or five per cent on property. If the company is based offshore the purchase of shares is exempt from stamp duty entirely.

On a residential property valued at £2m, the purchaser could save £90,000 from purchasing the shares in a UK company holding the property as opposed to purchasing the property direct. “The seller may also be able to negotiate a higher purchase price for the shares so that the SDLT saving is basically split between the parties,” added Montgomery.

There are some aggressive ways of actively avoiding SDLT currently being promoted, often via the internet, but HMRC is actively targeting such schemes.

“Such schemes can be considered very aggressive tax planning and HMRC is taking an increasingly dim view and is prepared to challenge them through the Tax Tribunal.” Montgomery added. ”They often rely on HMRC not chasing individuals who engage in them, and this is a very risky strategy. Our advice would always be to steer clear of such schemes.”