Stamp duty is a tax you pay on real estate you purchase and it results in a higher transaction price. Yet, there are multiple legal methods for HNWIs to reduce or avoid stamp duties and thus make investments more efficient.
What is stamp duty?
Stamp duty is a tax you pay when buying properties or land. Property buyers pay it to the state or local authorities after the stamp duty is calculated as selling price percentage.
In most jurisdictions, Great Britain, Australia, and India included, stamp duties greatly increase real estate costs.
The property price directly influences the stamp duty amount. As a rule, stamp duty is calculated on a sliding scale.
Stamp duty purpose is to finance state services and infrastructure projects. Stamp duty is normally paid when the property is transferred to the buyer. Failure to make the payment may result in fines and property transfer delays.
FYI: rules and regulations that govern stamp duty payments vary in different regions and jurisdictions. In this situation, taking professional advice is a wise step if you are about to sell or purchase properties. This way, you will truly understand the circumstances arising during the transaction as well as any other tax effects.
The International Wealth seasoned experts are here to offer you a free initial consultation as to selecting the right jurisdiction and property unit with due regard to your budgets. Working together with the International Wealth team you will significantly improve your investment returns.
How can HNWIs save on stamp duties?
There are several ways for HNWIs to legally decrease or avoid stamp duties on property purchase. Below, several examples are provided:
- Property purchase through an offshore company. The one above is a common strategy HNWIs use is to purchase property through an offshore company and not an individual. In certain jurisdictions, rules regulating stamp duty payments for companies are different from the ones for natural persons. In the former case, stamp duty rates may be lower or even zero.
- Property purchase through a trust. By this token, property purchase through a trust may result in lower or zero stamp duties. Oftentimes, wealthy families use trusts to manage real property they purchase.
- Exemptions. In many jurisdictions, exemptions and benefits are offered for certain property purchases, say, for a first property purchase or purchasing certain properties like new buildings or structures. Wealthy buyers may benefit from such exemptions to reduce their stamp duty liabilities.
- Investments in smaller properties. In certain jurisdictions, stamp duty rates are lower for smaller properties or properties of a certain value. For wealthy buyers, an opportunity exists to reduce tax liabilities by investing in namely these property types.
- Transfer of ownership. To reduce stamp duty liabilities, wealthy buyers are free to transfer property ownership to their family members, companies, or trust funds. NB: transfer of ownership in such a case is a complicated procedure with varying tax effects.
- Property purchase in lower-price districts. HNWIs may also decrease stamp duty liabilities by purchasing property in lower-price districts. Say, some jurisdictions come with lower taxes on property purchase in certain regions or districts.
- Negotiating with the seller. In many cases, negotiating the reduction of the property buying price with the seller is an option to decrease the stamp duty amount. The strategy is popular in the markets with sellers willing to negotiate, say, if the property in question has been put for sale for a long enough time period.
- Deferred property purchase decisions. Wealthy buyers can postpone property purchase to benefit from amendments in rules regulating stamp duty payments. In certain jurisdictions, temporary benefits are offered or lower stamp duties are applied to stimulate the property market in times of economic downturn.
- Stamp duty refunds. Under certain circumstances, buyers may apply for a stamp duty refund. Say, in Great Britain, you may apply for a 3% stamp duty refund if you sell your main house within 3 years after you purchase a second one.
- Rental property. Here comes a real-life example from mass media sources. A famous British football player decided to rent a lux 7-bedroom mansion with a private cinema, an indoor swimming pool, a workout room, a landscape garden, and a summer gazebo for as much as GBP 15,000 per week or GBP 780,000 per year instead of buying it for GBP 17,000,000. In the latter case, the stamp duty amount to pay would have made at least GBP 2,000,000 with property purchase.
To learn more about how to purchase property through an offshore company and what benefits such purchase comes with please follow the link above.
Stamp duty – examples
Take a look at how stamp duty influences the final property price in various jurisdictions.
Companies and other body corporates about to purchase property in England and North Ireland have to pay an approximately 15% tax. The same applies to individuals who purchase their second houses. Yet, if you purchase your first housing, the stamp duty rate will amount to 12% only.
Companies and body corporates pay a 15% tax provided they meet the following requirements:
- property unit price shall be above GBP 500,000
- property units may not be used for any business purposes.
If the property unit price is above GBP 1,500,000, individuals and trusts pay stamp duty of 15% and 12 accordingly
Since April 1, 2021, the stamp duty surcharge of 2% has been applied in Great Britain, if a non-resident buyer purchases residential property.
In Scotland, buyers shall pay stamp duty of up to 12% for property and land plots they purchase in the jurisdiction. The latter is applied if the transaction amount is above GBP 750,000. Similar rules are in force in Wales. They are applied if the price for residential property is above GBP 1,500,000.
In Germany, the property transfer tax is 3.5% to 6.5% of the transaction amount.
Stamp duty shall not be paid in case of a direct or indirect transfer carried out as a part of corporate reorganization under the laws of the EEA Member State, provided that at least 90% of the ultimate ownership stake remains unchanged for 10 years before and after the transaction.
Stamp duty is paid on every property transfer. It makes 3% the taxable property value. Besides, an extra tax of 3% in favor of communities and municipalities is paid on the principal property transfer tax.
Stamp duty in India is paid to the government of the state when you purchase property in the country. The stamp duty amount varies depending on a certain region. It may reach 8% of the transaction price.
You will find no federal stamp duty in the USA, yet certain states and municipalities come with their own taxes on property transactions. Thus, in New York, the statutory payment in case of property sale and purchase deals may reach up to 2.625% of the selling price.
In Australia, the stamp duty to pay to the government of a certain state or territory is obligatory, Depending on the state itself, its amount varies. In some cases, it may reach 7% of the property price.
NB: not all jurisdictions come with stamp duties. Georgia, Serbia, and Slovenia are a perfect example of jurisdictions with no stamp duty. In their case, investing in local properties is more appealing for the HNWIs.
FYI: not all strategies to avoid stamp duty payments work for HNWIs in 100% of cases. To duly structure the transaction and thus improve the property investment return, you are encouraged to message the International Wealth industry wizards for an expert consultation at the email below: firstname.lastname@example.org.