Lowered If Not Avoided Entirely

Published Date: 02 Nov 2017

For the study to be completed it was essential to the paper to identify the effect of stamp duty land tax on the property market and the extent of SDLT avoidance through the process of primary research. The author had to gain an in-depth knowledge of the subject by critically analysing the literature surrounding the subject area.

The first part of this literature review will identify the purpose of stamp duty land tax, its historical background and what it is now. Secondly SDLT avoidance will be examined to define its implication using primary and secondary research to establish its exact significance in relation to the subject matter.

The final part of the literature review will be completed with an in-depth discussion about stamp duty land tax and its degree of implication on the North-West of England housing market. The literature review will enable the author to choose suitable questions for further research within the area.

Stamp Duty Land Tax; Historical background and what it is now

Historians generally agree that Stamp Duty originated in the Netherlands in 1624 as a result of a competition for a new form of tax, the new tax required that legal documents should be written on stamped paper (HMRC, 2010).

It was introduced in England in 1694 in the reign of William and Mary as "an act for granting to their Majesty’s several duties on Vellum, Parchment and Paper". This was initially meant to be imposed for only 4 years to finance the war against Louis XIV however, the stamp duties were instead continued and increased from time to time by various statutes (UK regulation, 2010).

Modern history from the 1970s brought Stamp Duty under the Head of Charge Mortgage and Bond, Debenture and Covenant was abolished; this was to remove red tape has an aid to the housing market and to make mortgages more readily available (HMRC, 2012).

Within the 1980s and the 1990s significant changes included Nigel Lawson the Conservative Chancellor increasing stamp duty from £25,000 to £30,000 and a reduction in the top rate from 2% to 1% (Heywood, 2011). In the early 90s the recession enforced the Conservative government to suspend stamp duty on properties valued of less than £250,000 for almost a year. When new labour came into government in 1997 Gordon Brown launched new duty bands at £250,000 and £500,000 (Adam, et al. 2007).

Stamp duty in 2003 was renamed as Stamp Duty Land Tax which is a voluntary tax that is chargeable on conveyances of property this is largely different from stamp duty which remains chargeable on purchases of shares and securities (HMRC, 2012). SDLT is obligatory and transaction-based. The purchaser is liable for the tax, which is triggered by the transaction, such as the purchase of a property or the grant of a lease (Selby, 2010).

The new SDLT was intended to reduce tax evasion. Within the previous system it was possible to evade tax by selling "fixtures and fittings" separately at increased prices. In the current system, the sale of fixtures and fittings is declared together with the property and the Land Registry compares the purchase prices with typical prices paid within the area to detect tax evasion (Hilber, et al. 2012).

Changes in 2003 mean that clients will no longer need to submit SDLT documents to the HMRC for stamping, transactions that are liable to the tax should be reported by completing a Stamp Duty Land Tax (SDLT) return, also known as a Land Transaction Return and the duty paid within 30 days of completion (Mcdonald, 2011).

Property purchasers will receive a SDLT certificate (SDLT5), which they or their solicitors will need to present to land registries to register ownership of land. The tax is restricted to land within the UK and the perspective client does not have to be resident within the UK (Lagerberg, et al. 2003).

The UK stamp duty system in 2012 is a progressive schedule where the duty rate for the purchase goes up at specific thresholds. Houses that are sold for up to 125,000 are exempt from stamp duty to encourage the opportunity for first time buyers to take a step onto the property ladder (Hilber, et al. 2012).

Between £125,000 and £250,000 SDLT is set at 1% which would mean a prospective client buying land or property for £250,000 will be liable to pay £2500 in duty fees, the next increase in the threshold band is based upon properties purchased up to a maximum cost of £500,000 where a tax liability of 3% is charged.

Properties purchased within £500,000 and £1 million brackets are levied with a SDLT charge of 4%, land and property purchases between £1 and£ 2 million have an increased levy of 5% (HMRC, 2012).

Changes within the March 2012 budget have brought about significant change within the highest SDLT threshold; residential properties sold for more than £2m will be subject to a new 7% stamp duty charge. The Chancellor George Osborne has also confirmed ‘that stamp duty on residential properties over £2m which were bought via a company would increase to 15%’ and that ‘those who can afford the most expensive homes should contribute more’ (BBC News, 2012).

In 2010 the conservative government introduced the latest changes, a two year holiday from stamp duty for first time buyers purchasing property under £250,000 in an attempt to stimulate the stagnant housing market (The Guardian, 2010).

Income from UK stamp duty on sales of property has been lucrative, in 2001 £3 billion was collected in revenue which has gradually increased to over £7 billion in the peak of the property boom of 2008. Subsequent years have seen duty decrease due to the economic downturn and in 2012 the revenue collected was down to £4.25 billion (Cant, 2012).

Stamp duty revenue

Revenue from stamp duties is pro-cyclical with economic activity (European Commission, 2010). In terms of GDP and total tax revenue the highest values have been reached during the years at the end of the 20th century, notably in 2000-01. For 2008-09 the value is back to the level of the mid 1990s which is around 0.2% of GDP.

Stamp Duty Land Tax Avoidance

SDLT is an obligatory self-assessed tax and is in principle more difficult to avoid than the original stamp duty, within the intricacy of legislation this has given rise to various schemes designed to exploit anomalies or loopholes within the SDLT legislation (Nuttall, 2003). The Labour government in 2004 introduced the Disclosure of Tax Avoidance Schemes (DOTAS) rules which provide that arrangements intended to create an "advantage" in respect of tax must be disclosed to HMRC's anti-avoidance group (Selby, 2010).

There has been limited deterrence for those using SDLT schemes because, until recently, the DOTAS rules did not apply to property with a value of less than £5m or to any residential property. The only requirement was that the details of the scheme were to be disclosed but there was no obligation to inform HMRC of the identity of those using the scheme or of specific transactions in which it had been used (Rawlinson, et al 2012).

In December 2006, the government introduced a general anti-avoidance rule for SDLT in section 75A of the Finance Act 2003. This applies where one party disposes of land or property interest that is purchased by another party, a number of transactions are normally involved in connection with the disposal and acquisition (HMRC, 2012). The SDLT chargeable in respect of the transactions is less than it would have been had the interest been acquired directly from the original owner (Thomas, 2007). SDLT will need to be paid at the relevant amount by the purchaser (Rawlinson, et al 2012).

Section 75A has been argued unsatisfactory because it is potentially of poor and uncertain usage and is not subject to any test. HMRC's guidance on section 75A is also seen as inadequate and unclear and, at present the HMRC's policy is not to give a ruling on whether section 75A applies to a proposed transaction (Selby, 2010).

HMRC argue that section 75A is an anti-avoidance provision that is intended to counteract certain schemes, it has the effect of increasing SDLT liability but not all tax avoidance measures will be blocked without continued updates and future changes (HMRC, 2012).

SDLT schemes are still actively marketed. A number of companies claim "a 100% success rate". The typical fee is 2% of the purchase price which when compared to the maximum SDLT rate of 7% results in a potential saving for the purchaser of up to 5% (Williamson, 2012).

Tax avoidance schemes should not be used without a detailed analysis of how the legislation, in particular to reference of section 75A, will apply to the transaction (HMRC, 2012). Consideration should also be made on how avoidance schemes interact with other taxes including corporation, income tax and VAT. Certain avoidance schemes use perceived weaknesses in section 75A (Williams, et al. 2007). For example, it is excluded where SDLT is avoided by reason only that the transaction qualifies for the statutory alternative property finance reliefs, which are intended to be exempt from SDLT Islamic law-compliant financing transactions (Selby, 2010).

HMRC have recently introduced new rules following a major legal victory in a Stamp Duty Land Tax case (HMRC, 2012). Buying through a company specifically set up to avoid SDLT will now have to be disclosed to the HMRC. The case involved an aggressive SDLT avoidance scheme which a number of accountancy companies were using to help companies avoid paying SDLT (Nicholson, 2012).

Vardy Group wanted to acquire property costing £7.25m which would have incurred SDLT of £290,000. Instead, the group structured the purchase through a newly formed unlimited company, which immediately distributed the property as a dividend to the shareholder company. Since the final purchaser had paid nothing for the property it was argued that it was not liable for any SDLT (O'Loughlin, et al. 2012).

The decision in Vardy Properties Limited v HMRC TC 2242 came out in favour of the HMRC (Goodall, 2010). The first Tier Tribunal found that the unlimited company had not properly carried out company law requirements for declaring a dividend, and that in reality the ultimate owner of the property had indirectly provided the purchase price. The avoidance scheme failed and SDLT was due; this decision defeats a widely-marketed scheme used by home buyers and others who have tried to get out of their liability for SDLT (HMRC, 2012).

HMRC’s Jim Harra, Director General, stated that victory at the First Tier Tribunal "sends a clear message to tax avoiders that they will be challenged and people who are tempted by tax advisers to enter into avoidance schemes should think twice and not be driven by greed into signing up for schemes that are just too good to be true."

HMRC have challenged the current SDLT avoidance schemes as not having the effect the promoters of the schemes claim, because the general SDLT provisions do not apply in that way or because the targeted anti-avoidance rule operates to neutralise any tax advantage or gain (Williamson, 2012).

Schemes currently in use in 2012 include a sub-sale which is combined with the subsequent distribution of the property in the form of a dividend in specie and a sub-sale is combined with a subsequent claim to alternative finance relief (Christian, 2012). HMRC have claimed that combining a sub-sale with a transaction involving a partnership reduces the consideration chargeable to SDLT by virtue of the special partnership computational rules and is sometimes combined with a transfer by deed of gift or assignment (HMRC, 2012).

HMRC's compliance checks have had to become more stringent as the SDLT unit appears to have been hampered by low staff numbers, but HMRC has trained specialists in other areas to spot SDLT avoidance and non-compliance (HMRC, 2012). Recognition of avoidance has been improved in general conformity checks, this is because the SDLT treatment of some transactions is so complex that SDLT implications have in the past been overlooked or misunderstood (Hunter, 2011).

The National Audit Office (NAO) has highlighted HMRC’s inability to properly monitor tax avoidance, which is costing the country billions of pounds. An NAO report reveals HMRC is stretched and facing an uphill battle against avoidance. Revealed within the report is that HMRC are dealing with a backlog of 41,000 cases with up to £10.2bn at stake (Lovell, et al. 2012).

Trade Union Congress (TUC) has argued that ‘many loopholes are still in place and the government has a long way to go before it can justifiably claim to be taking a tough line on SDLT avoidance’ and that ‘closing down the stamp duty loophole is particularly welcome as it would tackle offshore abuse and raise revenue through property sales and council tax’.

HMRC claims to have successfully challenged 40 schemes in the last two years; however the NAO have found that disclosures do not always equate to hitting back at aggressive tax schemes. DOTAS has helped the HMRC to change tax law and prevent some avoidance activity, however the scheme has been found to be challenging and a resource-intensive process which can take years and often requires expensive litigation (Lovell, et al. 2012). The last four years has seen more than 100 avoidance schemes disclosed under DOTAS, but it also found that there was no evidence that their usage has been reduced (Murphy, 2012). The report also raised concerns that HMRC does not monitor its costs and has not yet identified how it will evaluate its effectiveness (Lovell, et al. 2012).

Amyas Morse, head of the NAO, said HMRC "must push harder to find an effective way to tackle the promoters and users of the most aggressive schemes" and "usage of highly contrived schemes which deprives the public purse of billions of pounds is inherently difficult to stop because tax avoidance is not illegal’. The government has been building on DOTAS to give HMRC stronger powers to obtain information and the disruption of the SDLT avoidance industry through a combination of legal challenge and improved intelligence on new schemes has helped to protect around £4bn (Murphy, 2012).

The introduction of an anti-abuse rule in 2013 will further strengthen the work involved to reduce anti avoidance to an acceptable level (HMRC, 2012).The General Anti-Abuse Rule (GAAR) is aimed at tackling egregious tax avoidance schemes and an interim group of panel members led by Graham Aaronson QC will oversee the development of the new guidance (Murphy, 2012).

Stamp Duty Land Tax and the UK property market

The UK provides an ideal setting to explore the impact of stamp duty land tax on

mobility decisions, partly because the stamp duty liability is substantial, especially for the purchase of expensive housing (Hilber, et al. 2012). SDLT is an important part of moving costs and they are the most important component directly determined by potential house movers, but little is known on their effect on mobility within the UK (Hole, 2012).

In a recent survey by Colliers (a London based estate agent) in 2012 about the effects of SDLT within the UK residential market, this showed that there was a negative perception around the tax. Results have indicated that 40% of respondents believe that the impact will be negative or strongly negative on the investment potential of the Central London residential market. Of the 19% who believe it will impact negatively, the majority were residential developers (46%). At the other end of the scale only 18% of respondents believe that it will have no impact on the housing investment market (Colliers, 2012).

In related studies internationally, Dachis (2012) using the introduction of SDLT increase in Toronto to estimate its effect on the housing market, found that a 1% real estate tax increase led to a 15 % decrease in transactions in the first eight months after the introduction of the tax. Van Ommeren et al.( 2005) also argues that evidence suggests that a 1% increase in the value of transaction costs as a percentage of the value of the property would decrease residential mobility rates by 8% within the Netherlands.

Nordvik, (2001) has analysed the mobility effects of SDLT in a theoretical dynamic life-cycle model of housing demand, his findings include that a 2.5% increase in stamp duty will decrease the number of property moves over a human life cycle from three to one and the loss of SDLT is somewhere between 17% and 34% of the current tax revenue. There is a long line of research from Oswald, (1996) that explores whether expensive moving costs related to owner-occupied housing may have a negative effect on mobility and unemployment due to the owner not able to accept employment in alternative geographical areas.

Within the UK the HMRC introduced a temporary relief from SDLT for purchases of residential property up to £250,000 in 2010 for a first time buyer (HMRC, 2010). After analysis in 2012 (Bolster, 2012) it was found that the tax relief has not had a significant impact on improving affordability for first time buyers. The relief has since been abolished with economic and credit conditions being blamed for the housing market slump and not SDLT tax payable on property purchases (Dunt, 2012).

Turner et al. (2012) argues that stamp duty for homes costing less than £250,000 should be axed permanently and the unfair tax system overhauled, properties should also be removed from SDLT in order to boost housing market activity at a time where higher deposits are required to obtain a mortgage. A similar view from Lambert,( 2012) states that SDLT system is outdated and prohibitive to increasing house sales, also the thresholds and the ‘slab’ mechanism should be reviewed. Only 13 % of stamp duty comes from properties worth less than £250,000 (Turner et al. 2012).

Britain’s largest property services group, Countrywide, has also urged the Government to ‘review the outdated thresholds’ in order to stimulate house sales (Countrywide 2012).

Relationship between the purchase price and stamp duty liabilities

Figure1 shows the tax schedule that applies during the author’s investigation period

Houses sold for up to 125,000 are exempt from stamp duty, but from £125,000 upwards the tax rate rises in a stepwise manner from 1 to 5 percent.

LSL House Prices Index (2012) stated that house transaction volumes are in the doldrums and in June 2012, sales hit a near record low, with only 57,000 transactions taking place, the second lowest level since 1995.

Estate agents as an industry are suffering a massive fall in income since 2007/08. Firstly volumes are down 40% and prices are also down by 20% in nominal terms which in real terms is closer to 35%. The combined effect is that aggregate commissions for the industry are down to a quarter of the pre credit crunch figures (Boyce, 2012).

National Association of Estate Agents (NAEA) also argue for the reform of the current stamp duty system include the fact that it further restrains first-time buyers, who have no home to sell to offset the cost.

Council for Mortgage Lenders (CML) state that the main problem with the structure of stamp duty is that it simply does not survive any scrutiny. Income tax, for example is graduated; when you earn over a certain amount you pay extra – but you only pay tax at the higher amount on the proportion of your income above that threshold. With stamp duty, if you buy a house at £300,000, for example, you will pay 3% on the whole amount – total stamp duty equals £9,000.If stamp duty was structured like other taxes, you would pay nothing on the first £125,000, 1% on the next £125,000 and 3% on the last £50,000 total stamp duty would then equals £2750.

The literature review has highlighted some key findings within the area of Stamp Duty Land Tax. The vast majority of the literature showed a negative perception to SDLT, especially those opinions from companies involved within the property market. However literature was found that supported the collection of SDLT. The author at this stage had not placed any bias opinion towards the effect of SDLT on the property market and intends to carry that forward to the approach of the study itself.

The author has reviewed the literature surrounding SDLT and expressed the key findings. The author has also researched the studies of SDLT avoidance and the extent to which it can be lowered or avoided entirely. The author believes that there is a limited amount of research within SDLT and its current effect on the UK property market and that estate agent within Warrington in Cheshire will be the ideal geographical study area, specifically asking participants to consider the long term effect of SDLT and avoidance on the UK property market.

Methodology

The author within this chapter will identify the primary research area required to complete the relevant study. Research will be divided into five parts including philosophy, approach, strategy, sample data area and time horizons. The ‘research onion’ from Saunders et.al. (2009) in Fig 1 will be used for the author to decide on which method of research is required to complete this study for e.g. quantitative, qualitative or mixed method. Saunders et al, argues that the data technique chosen actually lies within the centre of the research onion and there are many layers of the onion to peel away before the research technique needs to be implemented.

Figure 1

research design.JPG

(Saunders, et.al 2009)

Research Philosophy

The first layer of the onion involves choosing the research philosophy, Saunders discusses many philosophies but the main four relevant to this study are Positivism, Interpretivism, Realism and Pragmatism.

Positivism philosophy is based upon the methodology to enable generalisation and quantifiable observations and to evaluate the results of the findings with the help of statistical methods. Positivism philosophy is commonly used in natural science and it is a critical and objective base method. It is an approach that as a philosophy of natural science such as philosophy of unchanging, universal law and the view of everything that occurs in the nature. (Sundars 2003)

The interpretive philosophy believes that the social world of management and business is too complex as to be formulated in theories and laws such as in the natural science. Interpretive philosophy represents the critical thinking about positivism philosophy. According to this philosophy, there are many truths and meaning of a simple fact and these are suitable for every situation and for every research problem (Johnson and Christensen 2010).

Realism philosophy is also an important philosophy that is based on the dependency of human values and beliefs. This research philosophy focuses on the beliefs that really exist in the environment. This research philosophy believes in the existence of external and objective reality that influences people’s social interpretations and behaviour. It also believes that the human are not the objects for the study in the style of natural science. This research philosophy also define that how individual react towards a real world situation (Johnson and Christensen 2010).

A pragmatic research philosophy is introduced that embraces mixed-method approaches to applied research questions. Pragmatism emphasizes the practical problems experienced by people, the research questions posited, and the consequences of inquiry. The pragmatic researcher is sensitive to the social, historical, and political context from which inquiry begins and considers morality, ethics, and issues of social justice to be important throughout the research process.

The author of this study has decided to use a pragmatic perception to the research philosophy (Saunders, 2009). The pragmatic philosophy will have a hypothesis or question that would be used within the research, however unlike the positivist, the pragmatist would not start the research with the end answer this would only be made apparent on completion of the research. Interpretivist qualities and the ability to understand subjective aspects including an unbiased mind would be relevant in using a pragmatic approach.

Research Approach

Second layer of the research ‘onion’ involved choosing the research approach, the two approaches; deductive and inductive are pervasive elements in critical thinking. An arguments based on experience is best expressed inductively and arguments based on laws or rules are best expressed deductively. Most arguments are mainly inductive and usually come more naturally than deductive reasoning.

Inductive reasoning moves from specific details and observations to the more general underlying principles or processes that explain them. The premise of an inductive argument is believed to support the conclusion; an induction is regarded as a hypothesis and the inductive method also called the scientific method is an observation of nature to the authority.

Deductive reasoning in contrast typically moves from general truths to specific conclusions. It opens with an expansive explanation and continues with predictions for specific observations supporting it. Deductive reasoning is narrow in nature and is concerned with testing or confirming a hypothesis it guarantees the correctness of a conclusion. If you can strengthen your argument or hypothesis by adding another piece of information, you are using inductive reasoning. If you cannot improve your argument by adding more evidence, you are employing deductive reasoning.

Both deductive and inductive approaches can be used in one piece of research and by doing so can be beneficial to a research project (Saunders et.al. 2009) this is clarified has a mixed method research approach.

Primary research both quantitative and qualitative and secondary research of surrounding literature has been conducted within the study area, this could indicate a deductive approach would be required. Conversely all stages of the study area interviews and questionnaires would give a subjective public opinion and consequently the author as allowed observations to guide the study at this stage, showing an inductive approach. It would be more appropriate to say that this study has used a mixed method approach to the research, rather than a deductive or inductive approach.

Research Strategy

The third layer in the research onion is selecting the research strategy. There are six different research methods that the author can use to investigate the study area and its aim.

Firstly experiment which is a classical form of research that owes much to natural sciences. It will involve typically a definition of theoretical hypothesis, selection of sample, allocation of sample and a control on other variables. Secondly survey research a research method involving the use of questionnaires or statistical surveys to gather data about people and their thoughts and behaviours. Thirdly a case study is one of several ways of doing research whether it is social science related or even socially related. It is an in-depth study of a single individual, group, incident, or a community.

The final three methods are action research which is a reflective process of progressive problem solving led by individuals working with others in teams or as part of a community of practice to improve the way they address issues and solve problems. Grounded theory is a systematic qualitative research methodology in the social sciences emphasizing generation of theory from data in the process of conducting research. Finally ethnography which is a study of culture and cultural processes that uses multiple ways to research, observe, and document people or events.

The study area of research is exploratory and is looking to find the professional and public view of Stamp Duty Land Tax. The author is gauging how people perceive the tax and looking to identify any new insights if there are any. The author is also looking to see if there is a link between the public perspective of the tax and the professional viewpoint within the area of study.

The case study strategy was used by the author when the interviews process was carried out this was felt to be the most appropriate method within the first stage of the study. The process of triangulation was deemed to be important to the author and the survey strategy was used for the next two stages of the research study this would enable different data collection techniques to help to validate the findings. This was in the form of two questionnaires completed by professional and public participants. This helped the author to acquire a large amount of quantitative data quickly to access if comparisons could be made.

Triangulation is seen to increase confidence within the research gathered because multiple measuring processes have taken place within the data Webb et.al.

Research Choice

The fourth layer in research onion refers to research choices. It includes three different methods which are mono method, multi method and mixed method.

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Mono method procedure was considered for the research but this would have used a single data collection technique with corresponding analysis. This method was not felt adequate by the author as both qualitative as well as quantitative data was required for this study.

Mixed method research is considered "mixed" because it uses quantitative and qualitative approaches in one or several of the following ways: it combines different types of research questions, data collection procedures, data, analytical approaches, or conclusions. One of the main advantages of mixed methods research is its ability to unite exploratory and confirmation research the author chose the mixed research method was best suited for the research study area.

This study wanted to explore a professional opinion and the public perception of SDLT and its effects on the UK property market, specifically within the town of Warrington in Cheshire.

The author decided that estate agents within the Warrington area could provide the professional viewpoint and that members of the public would add a non professional perspective to the research of the tax.

A three stage approach was used to research study area:

Stage 1:

The author decided that stage 1 would be five interviews with individuals who had within recent years moved house and had been obligated to pay SDLT on their future purchase. The author wanted to gather information from the interviews to gauge their views on the tax and also to see if any method of legal tax avoidance was used. Qualitative findings allowed the author to analyse his findings to gain an insight into the public perception of the tax.

Stage 2:

This stage of the research the author felt it was essential to the study to develop a questionnaire (see appendix 1) that would be completed by 10 estate agents within the Warrington area. Time constraints involved meant that only local agents were contacted and the author would be unable to gain enough responses for the research to be nationally represented. All 10 questionnaires were completed and the data gathered was only intended to give a local professional viewpoint within the research area.

Warrington and its surrounding area has been selected by the author because there are over 120 estate agents within its location. Property demand within the area of research is still very strong despite the economic downturn with over 7500 properties currently for sale with Warrington estate agents.

Stage 3:

Within the final stage of the research study the author intended to triangulate his research by developing a second questionnaire based from the original answers from the first questionnaire. The author decided that 50 new estate agents would complete the questionnaire to gather enough data to make the research a quantitative study of the estate agents within the area. All 50 questionnaires were completed and the author had no influence on an individual perspective on the tax. The author’s intention in gathering data in this way was to gauge a professional opinion and a public perspective into the effect of Stamp Duty Land Tax on the UK property market and the extent to which SDLT can be lowered if not avoided entirely.

Research Time Horizon

The planning of a research data project requires a choice of two different types of time horizons. The first horizon is cross-sectional study this will normally be used when there are time constraints and there is not sufficient time for research. They may be searching for an event in different organizations at the same time or to compare similar factors. This is also referred to as a "snapshot" because the research is made at a particular point of time.

Longitudinal time horizon is the second time horizon that can be adopted; this is usually studying the same research within different time frames. It is also known as the "diary" perspective which observes people or events over time. One of the basic questions in longitudinal studies is "Has there been any change over a period of time?"(Saunders. 2009. P.156).

The time horizon chosen for this research is the cross-sectional; this is mainly because of the time limits that are applied to the study of a degree course. Three stages of research have been completed including interviews and questionnaires which have provided the author with a snapshot into SDLT at the present time both from professional and the public viewpoint.

Ethical Considerations

The conducting of research requires the author to consider the code of ethics. It is critical that there is an understanding of the basics of ethical research and how this might affect the research project. This is particular important to this area of research because it involves interaction with members of the general public who have participated within the study.

There is the possibility that interaction with participants within the research may inadvertently injure or cause distress to them in some unintentional way.

This could include:

Psychological harm- researching the use of nudity in advertising may show participants images that offend them.

Financial harm- undertaking industry based research may inadvertently share sensitive information with a company’s competitor, resulting in financial harm to the organization.

Social harm- researching how lifestyle affects consumption may unintentionally disclose a person’s sexual orientation when that person wanted to keep this confidential.

The author when conducting his research to protect the participants did not include personal information questions for e.g. names, addresses and contact no’s. The participants were informed before the interview process that their views are only going to be used within the research area and any questions that they felt uncomfortable to answer were to be left and remain unanswered.

The second and third stages of research which used questionnaires to gauge professional opinions including a section on confidentiality; a cross section of estate agents was used to ensure no bias and no personal information was required within the questionnaire.

Limitations

The research has been conducted on a small number of participants and the results will be limited by the knowledge of those participants that have taken part within the study. This will not represent the views of the whole of the general population but it does represent a professional and public viewpoint of SDLT of the populous within a town in the north west of England.

The study was limited due to time restrictions when completing a full time degree. A cross sectional approach was felt to be the most beneficial to the study and this was used to gather the data and information that was required to complete the research. This method was seen to be the most adequate for the tight time scale that was in, but the author felt if more time was allocated to the project a longitudinal study could have been performed to include estate agents and the general public across the whole of the UK.

Results

This chapter will provide a detailed look at the evidence that has been collected within the research study; its aim is to provide the answer to two questions that were highlighted at the start of the research.

- An exploration into the effect of Stamp Duty Land Tax on the North-West of England property market both from a professional point of view and non professional from members of the public who have paid SDLT within the recent past.

- An exploration of how to reduce, if not avoid the liability of Stamp Duty Land Tax and the level of individuals knowledge of how to do so.

The author on conducting his research within this study created two questionnaires and carried out five individual interviews

The first questionnaire contained five closed questions, the author wanted to initially gauge the general opinions of ten estate agents within the area of SDLT including the obligation of their clients to pay the tax and secondly to enquire whether tax avoidance schemes are promoted to potential clients.

The second questionnaire was aimed at fifty different estate agents, the author felt that additional in-depth data was required based on the answers received from questionnaire one. The five original questions from questionnaire one was included and an additional five questions were added to gather the further data required for the research. The five additional questions contained gave the author the opportunity to gather further quantitative data over a wider research area.

After completion of the three stages of research, the author’s analysis from his interviews and questionnaires were processed with the following results.

Interviews

Primary research was first performed with interviews with five local participants, all of the participants lived within the residential area of Warrington within Cheshire. All of the participants had purchased property and have been eligible to pay Stamp Duty Land Tax within recent years.

Interviews were structured by the author to gather a non professional response from each participant on the area of Stamp Duty Land Tax.

The following eight questions were asked with the opportunity for the participant to add further information if required:

1. Do you know what Stamp Duty Land Tax is? The result was as expected with 100% of the participants answering -Yes.

2. Have you ever experienced the burden of Stamp Duty Land Tax firsthand? Again the result was 100% -Yes all participants had paid the tax on the purchase of their homes.

3. Do you have an opinion upon the fairness of Stamp Duty Land Tax? This question split the results with 60% replying –Yes and 40% replying –No. Additional comments included ‘the tax restricts young people from purchasing their first home’ and ‘it is unfair and expensive’

4. Do you know any means by which to avoid the Stamp Duty Land Tax liability? The result was 100%-No with all participants unaware of any methods to avoid the payment of the tax.

5. Have you made any plans or do you intend to make any plans to avoid Stamp Duty Land Tax liability for yourself or your family in the future? This question again split the results with 40% replying –Yes and 60% replying –No. Possibly the response from this question was influenced by the previous question which made reference to avoidance of the tax.

6. Does Paying SDLT have a bearing on the purchase of your future house? The result of this question was 100% -Yes with all participants replying that the cost of the tax will influence their decision on moving home.

7. Do you think SDLT should be abolished and included within another tax? e.g. Income tax? This result of this question was 80% -No and 20% Yes. Additional comments included ‘that the tax would be unfair if it was included within another tax has it should only be aimed at people purchasing a home’ and ‘if it was included within income tax this would allow the property market to grow with potential house buyers not being burden with another tax when moving home is already an expensive decision.

8. Do you think SDLT should be abolished to rejuvenate the housing market? The result was again as expected with 100% of the participants answering -Yes.

The author also decided to ask unstructured questions such as did the participants think that abolishment of Stamp Duty Land Tax could lead to another economic housing crisis that was experienced in the 1980’ and also the fairness of band rates from zero rate to the maximum seven percent etc. On reflection the author felt that the non professional participants who had taken part within the interviews did not have a strong understanding of the area and the unstructured questions were too in depth to be asked at the interview stage.

The interviews have gathered valuable data from the five participants regarding Stamp Duty Land Tax. Their responses from the structured questions allowed the author to collect data which has helped him to generate with confidence questions for the next stage of research.

The overall findings from the five interviews concluded that the participants found Stamp Duty Land Tax to be unfair; their knowledge seemed to be basic especially when unstructured in-depth questions were asked pertaining to the tax.

Questionnaire 1

The first questionnaire attempted to seek a professional opinion from ten estate agents within the North-West of England into the effect of Stamp Duty Land Tax on the property market and the levels of knowledge in avoidance of the tax.

Five questions were asked with the opportunity for the participants to add further information if required:

1. What is your opinion on the obligation to pay Stamp Duty Land Tax? Is it fair or unfair? This question split the results with 40% replying –Yes that they felt it was unfair and 60% replying –No that the tax was fair and justifiable. Additional negative comments included that the tax was ‘unfair and expensive’ in line with the non professional interviews but other positive comments included that the ‘Tax is justified and can help to limit clients from purchasing property that is beyond their economic means’.

2. Do you know of any methods of reducing SDLT liability? E.g. transferring ownership? Within analysing the results 80% of estate agents responded –No and 20% were unsure. No additional comments were given which leads the author to believe that estate agents are unaware of methods of reducing tax liability.

3. Do you advise your clients of SDLT and legal tax avoidance schemes? The result was as expected with 100% of the participants answering - No. Based on the evidence received in question 2 it was expected that no legal tax avoidance schemes are offered to their clients.

4. Do you think if SDLT was reduced it would improve the housing market? The result was 100%-Yes with all participants believing a reduction in tax would help the current housing market. One estate agent commented that ‘the increase from 1% to 3% at £250k affects the saleability of properties marketed between £250k to £285k and needs to be reduced’.

5. Do you think SDLT should be abolished to rejuvenate the housing market? The results from this question came as a small surprise to the author with 70% replying –Yes and 30% of estate agents replying –No. Additional comments included that ‘Tax is required by the treasury and if this tax goes it will only be replaced by another’ and ‘the government should do everything possible to drive first time buyer activity and purchase of the lower end housing stock as this drives the whole market’.

The overall findings from the ten questionnaires conducted by the estate agents concluded that the participants found Stamp Duty Land Tax to be mostly fair; their knowledge seemed to be competent especially around the area of tax, but knowledge of tax avoidance schemes were relatively none existent. The general consensus also concluded that Stamp Duty Land Tax should be either reduced or abolished to improve the currently slow housing market.

The questionnaire gathered valuable data for the author from the ten estate agents regarding Stamp Duty Land Tax. Their responses have allowed the author to study the area of Stamp Duty Land Tax from a professional viewpoint in greater detail and have been a great help to generate the additional questions for the next stage of research in questionnaire three.

Questionnaire 3

Already, although only at the beginning of the analytical process, the author has partially established the answers to the three overriding questions that seek to identify an individual’s opinion upon the fairness of IHT, an individual’s knowledge of IHT and any relationship between an individual’s perception of IHT and the level of knowledge that they have of the tax.

Question four asked the participants if they have been subject to the burden of IHT, the results show that out of the 20 participants asked that only 4 had actually experienced the tax. The same four participants stated they had sought knowledge from a professional on the subject of IHT. Question six asked participants if they had any knowledge of how to reduce if not avoid an IHT liability, this returned seven positive answers. From these results it is clear that the participants who have encountered IHT find the tax to be unfair; what the results also show is that out of 20 participants only a minority of 4 participants have actually encountered an IHT liability, have sought advice and have knowledge of how to reduce their liability. This shows that several participants stated the tax was unfair even though they have never had to face it so far in their experience and do not have specialist knowledge or guidance on how to deal with it.

Again using the example of participant 8;

Question

Have you ever been affected by IHT

Have you ever sought IHT advice from a professional

Do you know any methods of reducing IHT

Answer

No

No

Yes

As mentioned above, using the example of participant 8, it is clear that this particular individual disagrees with IHT, finds the tax to be unfair yet has never been affected by IHT personally and has never had to seek specialist knowledge on the subject. The questions also reveal that the individual knows what IHT is and does have some

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knowledge of how to reduce if not avoid an IHT liability. The author is already aware from the literature that IHT is a complex method of taxation and that there are several arguments against the tax such as ‘the double taxation’ debate, this leads the author to believe that participant 8 has a reason for objecting to IHT that may be caused by arguments the individual has heard/read rather than experienced.

Question 7 asks participants specifically if they are using any planning methods to reduce an IHT liability such as PET’s or CLT’s, the majority of participants responded ‘no’ to this question. The following four questions that make up part 2 of the first questionnaire are more personal questions that should allow the author to profile the type of participant. Again the author will use the example of participant 8;

Question

Gender

Age

Approx property value

Housing Tenure

Answer

Male

40-50

£300K +

Single home owner

Participant 8 is a single home owner that lives in a property very likely to put him in the IHT barrier. The individual is at the age were there should still be plenty of time to implement good planning methods to reduce IHT as they are likely to live another 7 years. The individual’s nil rate band allowance currently is £325,000. It is possible that the individual may be a widower and have a nil rate band to carry forward; marital status is not a question the author asked. However question 7 asked the participant if they were considering any planning methods and to this question, participant 8 responded ‘no’. If participant 8 has such a strong objection to IHT and had enough knowledge of the tax to understand that he is very likely to be liable to IHT then it is strange that he is not considering any methods of reducing if not avoiding a liability.

From this information it is the author’s perception that participant 8 has a small awareness of what IHT is and has heard of some planning methods but does not have a great enough knowledge to do anything about it. Again this supports the author’s understanding from the literature that IHT is a complex method of taxation and people simply do not understand it.

Question 2: Do you think IHT is 'fair' or 'unfair'

Unfair = 79%

Fair = 17%

No opinion = 4%

Questionnaire 2

The second questionnaire was completed by 200 participants answering three questions each. It was difficult to compare the results in a tabular format like the first questionnaire as the first question of this questionnaire asked the participants to state the first word that came to mind when thinking of inheritance tax. The most recurring words expressed are listed below;

- Unfair

- Scandalous

- Absurd

- Ridiculous

- Robbery

- Scheming

- Tax

Some responses for question 1 have been omitted from the list as readers may find them offensive. However it is clear from the findings that the majority of participants object to IHT. The participants that responded ‘tax’ could be interpreted to neither object nor agree with IHT and that is the reason for the second question to ask participants if they find IHT to be ‘fair’ or ‘unfair’. The results are shown below; 35 | P a g e

The third and final question asked participants to give reasons for their response to question two. Again the key reasons are listed below;

- ‘It’s my money, I’ve earned it and paid tax on it, why should I be taxed again’

- ‘Why should the government take a chunk of what I want to leave to my family’

- ‘The taxman is cheating middle class people who have saved all of their lives, they should be taxing the rich’

From the answers to question three it can be seen that individuals feel it is their money and they should be able to do what they wish with it. The results from the second questionnaire correlate with the interviews and first questionnaire within this research study, with the overall majority of participants having a negative perception of IHT. 36 | P a g e

Chapter 5 – Conclusions

In the previous chapter the author identified the findings from the primary research undertaken for this study and highlighted the key themes that arose. In this chapter the author attempts to illustrate if the primary data collected provides a link to the secondary data analysed during the literature review at the initial stage of this study. The second part of this chapter will outline any future research the author has identified that could or should be carried out from the conclusions made.

Primary Research Vs Secondary Research

At the start of the research study the author conducted secondary research in the form of analysing literature surrounding the topic area. The main literature especially that of which carried out opinion polls with the public found IHT to be ‘unfair’. There were the same reoccurring arguments that Sagar (2008) and White (2008) both attempted to justify in the support for IHT such as the double taxation objection etc. The primary research conducted also encountered the same reasons in objection to IHT.

The taxation of inheritance is primarily targeted at richer individuals rather than middle class, from the secondary research we can see that the main reason for individuals being liable to IHT in recent years has been due to soaring house prices. One problem expressed by Thornhill (2006:1) has found that even though the IHT barrier is increasing, house prices are increasing more – ‘Today, it is £285,000, an increase of 42.5%. But over the same period, house prices have risen on average by 140%. Millions more households are now caught in the IHT net’.

Warburton (2006:1) discusses how when IHT was first introduced it was promoted as a ‘Robin Hood Tax’, with intentions of taxing the rich and redistributing wealth in the economy to the poor. He describes the reason for IHT generating uproar from the public is the fact that it is ‘inherently unfair’. Warburton through various newspapers, articles etc, provides advice on how to reduce an inheritance tax liability. Like many people believe, he states how the very rich can and do avoid an inheritance tax liability and he recognises that it is the ordinary working class people who through the means of rising house prices are the ones being targeted with an inheritance tax bill.

The 2011 budget announced on the 23rd March 2011 has stated the inheritance tax nil rate band; currently £325,000, has been frozen until April 2015 (HM Treasury, 2011). Currently house prices are down but if the economy picks up, house prices soar and the nil rate band limit stays put, then the average working class individual will be targeted once again by a large IHT burden.

The author believes that the research conducted has achieved the objectives set out in chapter one of this study. The primary and secondary research has answered the

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questions as intended, however the author believes that the research has shown insights that may not have been considered before and if not then there is a strong argument for future research to be conducted in this area; individuals find IHT unfair even though they have not experienced the burden, individuals have enough knowledge to know they are liable to IHT but do not know enough to take advantage of the reliefs available to reduce their IHT liability.

This study concludes with potential changes to IHT in terms of what has been found from secondary and primary research. The first part of the literature review discusses what inheritance tax is and how it came to be, as mentioned earlier in this conclusion, IHT was first promoted as a ‘Robin Hood Tax’ (Warburton 2006:1). In terms of what IHT is meant to achieve, the author believes that it is a fair method of taxation. In terms of how IHT actually works and the individuals it is actually affecting, the author deems this to be the unfair part of IHT.

The only solutions the author can see to address this problem would be to remove the incentives through inheritance tax planning or to reduce the complexity of IHT. However with both suggestions there are potential problems. If IHT planning incentives were to be removed and IHT was simply charged a cumulative total then it would be virtually impossible to track all gifts made etc, however it would achieve fairness in the sense that richer individuals who have access to specialist knowledge in the form of accountants etc would not be able to reduce or avoid an IHT liability whilst working class individuals being the only ones bearing the burden.

On the other hand if IHT was simplified, similarly to how the government simplified capital gains tax in previous years, this could lead to the amount of tax collected significantly being reduced, this would probably lead to the government needing to increase the rate of IHT to make up the deficit. The OTS (Office of Tax Simplification) concluded in its report on potential reforms to the UK tax system that IHT should be simplified (McMillan, 2011), the report was completed on the 3rd March 2011 and some of the suggestions were highlighted in the 2011 budget, however any reforms to IHT that would benefit the public were not. The only change to IHT in the budget was a relief for those leaving 10% or more of their estate to charitable donations; however the chancellor highlighted "...no beneficiaries will be better off, just the charities..." (Smithers, 2011:1).

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Future Research

If future research on the subject was to be undertaken a longitudinal study may be beneficial as a case study approach could be used to look at real life scenarios of participants’ who are likely to be liable to IHT and to observe the knowledge they have, how they deal with the planning for IHT (if any) and their reaction to the fairness of IHT. For a longitudinal study such as the one proposed to be valid and reliable then the authors proposed timescale would have to be for a minimum of approximately 1 year, again this was a limitation affecting the author’s choice of study.

The author believes it is necessary for research to be conducted into potential reforms for the tax as from the findings of the literature and the primary research; the author believes the tax is simply not working as it should be.

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Reflections

The author has found the completion of a dissertation to be the most challenging yet enjoyable aspect of university education.

On completion of this study the author has gained invaluable experience towards research, for example; improved research and analytical skills.

One of the objectives stated at the start of this research study was to increase knowledge of the subject area as the subject itself was too complex to fully learn in the time allotted to the university module. The author having completed this dissertation has achieved a greater understanding upon the subject of IHT and looks forward to putting that knowledge into practice within a future accountancy career involving taxation.

Requires added parts

Use triangular questionnaire part 1 send 10 questionnaire part 2 send another 10-20 same questions with extra ones based on the info provided by the first questionnaire Part 3 public questionnaire based on questions from previous questionnaire

Info – research is based on a town within the North West.