HMRC crackdown on Stamp Duty Tax Avoidance Schemes
HM Revenue & Customs have announced their victory in a key court case this week, defeating a widely-marketed scheme to avoid stamp duty land tax (SDLT). This decision is expected to save more than £170 million for the UK Exchequer.
The case involved an aggressive SDLT avoidance scheme which a number of reputable accountancy firms had been promoting.
The company involved wanted to acquire property costing £7.25 million, which would have incurred SDLT of £290,000. However, the group structured the purchase through a newly formed unlimited company, which immediately distributed the property as a dividend to the shareholder company. The group argued that SDLT rules looked through the unlimited company’s purchase and because the ultimate purchaser paid nothing for the property it was not liable for any stamp duty.
However, the First Tier Tax Tribunal found that the unlimited company had not carried out proper company law requirements for declaring a dividend and that the final owner of the property had indirectly provided the purchase price. Therefore, the avoidance scheme failed and the SDLT was due.
HMRC’s Director General of Business Tax, Jim Harra, said: “This victory at the First Tier Tribunal sends a clear message to tax avoiders that we will challenge avoidance relentlessly. The decision is good news for the vast majority of taxpayers who pay, rather than try to dodge, their taxes. It shows that the courts will see through arrangements which are put in place just to avoid tax.
“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 also announced new regulations designed to force users of a wider range of stamp duty avoidance schemes to disclose them. The new rules are expected to give HMRC much better access to information about avoidance schemes. They will also provide more information about those who promote the schemes and those who use them.
Exchequer Secretary to the Treasury David Gauke said: “This Government has been clear that when someone buys a house in the UK they must pay Stamp Duty. At the Budget we announced a number of steps that we are taking to crack down on people who try to avoid this responsibility. Today’s legislation will mean that HMRC will have access to more information about property tax avoidance. They will not hesitate to use it to close down avoidance schemes.”
“The Government is totally committed to tackling this kind of tax avoidance scheme and HMRC will take cases through the courts whenever necessary.”
Andrew Swan, financial crime Partner at Short Richardson & Forth LLP commented: “Stamp duty tax avoidance schemes have become big business and are often very attractive. However, HMRC are coming down hard on them, with those involved often being prosecuted through the criminal courts.”
“Be cautious, if such a scheme looks too good to be true … well, you know the rest.”