As we have warned in previous articles schemes designed to dodge stamp duty land tax (SDLT) are likely to face tougher review following a landmark tribunal hearing this week.
A First Tier Tribunal ruled against Vardy Property Group after it sought to exploit a rule to avoid paying £290,000 of stamp duty on the £7.25m purchase of commercial property in 2006.
Sub-Sale Relief Under Scrutiny
The group had sought to use sub-sale relief which forms the basis of many stamp duty avoidance schemes even at the low end of the property market. It structured the purchase through a newly formed unlimited-liability company, which immediately distributed the property as a dividend to the shareholder company. The group claimed that as the final purchaser had paid nothing for the property it was not liable for stamp duty.
But the 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. Therefore, the avoidance scheme failed and SDLT was due.
Vardy Property Group said it will not be appealing the decision ‘We went into this arrangement in good faith having been professionally advised, along with many other property investors, that it was a perfectly legitimate and legal course of action. With the benefit of hindsight, it was the wrong decision. Important lessons have been learned as a result, not least taking action that is based entirely upon professional advice.’.
Jim Harra, HMRC’s director general of business tax, said: ‘This victory at the First Tier Tribunal sends a clear message to tax avoiders that we will challenge avoidance relentlessly.’
Earlier this year, the Solicitors Regulation Authority urged solicitors to think twice before becoming involved in SDLT schemes – Richard Collins, executive director, said: ‘In view of the level of concern on the part of HMRC and the fundamental importance of integrity in the provision of legal advice, we will look very closely at the conduct of any firm actively involved in these schemes. Buyers of property are free to use honest and proper tax planning to mitigate their tax liability, but there are a number of risks and misconceptions surrounding SDLT schemes,’ he said.
Do you think you have received bad advice?
If you have been introduced to a firm of solicitors who provided specific tax advice to enter into such a tax saving scheme then contact us if you are concerned that you may have an ongoing liability to pay SDLT tax. We can obtain the file from your lawyers (provided you paid your bill) and ascertain whether you have a potential claim for losses – this could mean that you could recover the fees paid to the lawyer, the promoter of the avoidance scheme plus any penalties charged by the Revenue. You would still be required however to pay the outstanding Stamp Duty to regularise the position with the Revenue.
For further details please contact Mark Sadler at kenneth elliott + rowe solicitors by email email@example.com or by phone 01708 757575