Part-exchange buyers feel burden of stamp duty: Revenue changes in the last Budget have led to chaos, writes Sue Fieldman

THERE is intense pressure on the Inland Revenue to change rules on the payment of stamp duty for part-exchange of one home for another, introduced in the December Budget.

The rules seemed harmless when announced, but now that details are available, it is obvious the Government has dropped a bombshell.

What is worse, the Inland Revenue is unofficially confirming that there are ways to avoid it.

Stamp duty is paid if you buy a house priced above pounds 60,000. It is 1 per cent of the purchase price - pounds 1,000 on a property worth pounds 100,000.

About 25 per cent of new house sales are part-exchanges. Before the November Budget, the rules for part-exchanges were simple and cost-effective.

If buyers exchanged one freehold property for another, they only paid stamp duty on the cash difference between the two properties, which often meant no stamp duty at all.

A simple announcement in the Budget changed that. From 8 December exchanges of property were treated as transfers with duty payable on both transfers.

It was assumed that buyers exchanging a pounds 50,000 house for one worth pounds 100,000 would pay duty of pounds 1,000 and the other party would pay nothing.

'To almost everyone's disbelief the duty now payable on an exchange is to be calculated on the value of the more expensive property,' said Don Draper, the director of stamp duty services at the accountants Price Waterhouse.

'In our example, each leg of the transaction attracts duty on pounds 100,000 so both parties would be paying pounds 1,000.

'What is worse is that a special parliamentary procedure, which allowed no opportunity for debate, was used to introduce these changes.'

Builders are worried that the changes are threatening the recovery in the housing market.

'Technically the (Inland) Revenue has made a complete mess of the stamp duty change. It is a crazy problem that they have created,' said Roger Humber, a spokesman for the House Builders Federation.

Mr Draper said: 'The Inland Revenue has been telling people that the new legislation can be circumvented to achieve a single stamp duty charge on one of the properties if you draft the documents in a certain way.

'According to how you word the documents the duty on a property acquired under an exchange could be based on either the value of the property 'sold' or the property 'bought' or could even be just 50p.

'The whole situation is absolute chaos. You have the legislation on the one hand, and the Revenue saying the results under it need not arise on the other.'

The House Builders Federation and the Law Society are both lobbying the Inland Revenue to sort out the mess.

The Inland Revenue was unable to comment.

Chris and Jane Ord have exchanged their three-bedroom semi-detached house, worth pounds 46,000, for a new three-bedroom detached house built by Barratt, the housebuilders.

The price of the new house in County Durham is pounds 73,500.

The Ords completed their sale and purchase on 5 November. They did not have to pay any stamp duty as the cash difference between the properties was less than pounds 60,000.

If they had bought just over one month later they would have been liable for pounds 735 duty.

'We had to move when I was being relocated so being able to part exchange made all the difference,' Mr Ord said.

'Our house had been on the market for three months before we decided to part exchange it. If we had completed later and had to pay an additional pounds 735 stamp duty on top of all the other expenses, we would not have been able to move. It is as simple as that.

'People get crippled for stamp duty. The Government talks about kick-starting the housing market. Asking people to pay more stamp duty hardly seems the way to do it.'

(Photograph omitted)