It is hardly surprising when Stamp Duty - or more accurately Stamp Duty Land Tax (SDLT) – can be up to four per cent of the price you pay for your new home, that buyers are tempted by schemes intended to reduce it or even avoid it altogether.
We have always been wary of the hype created by those selling such schemes. Fortunately, when explained to them, most of our clients have taken the view that they would prefer to sleep easily at night and pay the SDLT due. There is a general principle in law that if a transaction is undertaken just to avoid tax, it will not work. However, many buyers have taken up one of the various schemes on offer and paid those promoting them a tidy sum for the privilege, the sum paid, however, being significantly less than the amount of SDLT they would otherwise have paid.
HM Revenue and Customs (HMRC) has announced that it is challenging SDLT tax avoidance schemes. This will involve comparing transactions reported to the Land Registry with the returns made to HMRC and following up any discrepancies. The statement from HMRC says that none of the avoidance schemes which they have fully analysed has the effect that the promoters claim.
Promoters have used the fact that they have reported their scheme to HMRC and received a Scheme Reference Number as a means of verifying its authenticity. HMRC are saying that the issue of a Scheme Reference Number is merely confirmation that it has received the disclosure of the scheme’s existence and is aware that the scheme is being marketed. It does not accept that the scheme is valid.
HMRC has the power to go back for up to six years to investigate individual cases. If the findings are that the scheme does not work, SDLT will be payable, there will be interest to pay and in some cases, penalties may be imposed. That, on top of the fee paid to the promoter, will make the house move a very expensive exercise indeed.
Of course, HMRC is not the final arbiter of the validity of these schemes. The courts hold that privilege and, no doubt, the amounts involved in some cases will make it worth the homeowner’s while to challenge HMRC if they decide to reject any or all of these schemes. The promoters of these schemes will also want to challenge any attempts to cut off their lucrative source of income – and avoid potential claims on their indemnity policies which will inevitably arise as those losing out look to point the finger at the advisors involved.
With a rise to five per cent of properties over £1m from the 6th April, SDLT is a very significant expense in the whole house moving process. It seems that there are going to be fewer opportunities to avoid it. But as the saying goes, there are only two certainties in life – death and taxes.
Mike Sheldon is a partner and head of residential property at Raworths. To contact Raworths telephone 01423 566666 or visit our offices at Eton House, 89 Station Parade, Harrogate, HG1 1HF. Alternatively you can email Mike at mike.sheldon@raworths.co.uk
