HMRC victory in SDLT avoidance case

HMRC has won a key court case defeating a widely-marketed scheme to avoid stamp duty land tax (SDLT). Nick Huber reports.

The decision, subject to any appeal, could save more than £170m for the UK Exchequer.

Regulations have also been laid that will force users of a wider range of SDLT avoidance schemes to disclose them to HMRC.

Continued...

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Comments
elansea's picture

SDLT victory for HMRC

elansea | | Permalink

I never thought I'd ever say this, but well done HMRC. This was clearly a failed scam from the outset and only large accountancy firms with even larger fees and the greatest optimist of a client would have expected it to work. It was never "avoidance" of which I wholeheartedly approve, but just another clumsy evasion

Nick Graves's picture

Seconded

Nick Graves | | Permalink

Indeed; fair play to HMRC on this one.

Unless I've really missed something, it seems like a case of scamming a gullible rich client and the only thing it's achieved is to complicate everyone else's reporting requirements.

Sort of thing that gives the industry a bad (OK, even worse) reputation.

 

 

Like  Elensea,  I never    1 thanks

ken of chesterl... | | Permalink

Like  Elensea,  I never thought i would applaud HMRC , but I do on this.

I would also think the same could be said of 90% of the accountancy profession.. 

There ought to be a word "avoision", but there isn't. 

Can anyone offer me a definition of avoidance?  much of what people refer to as avoidance is tax planning really.  Or tax mitigation. If I employ my wife, defer my capital allownces, sign gift aid declarations, relate back gift aid to protect age allownce from abatement, move my year end about, take profits in the form of dividend/ director's fee, claim use of home as an office, wind up my company or decide not to, invest in pension schemes  or, should i come from outside the UK,  make capital gains tax disposals before taking up residence, tell acadmics to teach abroad for twelve months (not sure that one still works, i am retired), tell a vicar to nominate a retirement home and let it till he gets too old to vick any more, is any of this avoidance?

I always take avoidance  to mean articificial schemes to frustrate the purpose of the law while complying with the letter.   My rule of thumb was, if I understand it, it's legitimate tax planning.  If I don't understand it, it's avoidance.  If a banausic client asked me  what to "put down" , it's evasion.  

You'd have thought that if

The Limey | | Permalink

You'd have thought that if you go to all the effort to try and setup a scheme like this, you'd make sure you get the company law bits right!

And people on here say that 'it's only paperwork' about declaring dividends...

Nick Graves's picture

Good question, but;

Nick Graves | | Permalink

ken of chesterle street wrote:

Like  Elensea,  I never thought i would applaud HMRC , but I do on this.

I would also think the same could be said of 90% of the accountancy profession.. 

There ought to be a word "avoision", but there isn't. 

Can anyone offer me a definition of avoidance?  much of what people refer to as avoidance is tax planning really.  Or tax mitigation. If I employ my wife, defer my capital allownces, sign gift aid declarations, relate back gift aid to protect age allownce from abatement, move my year end about, take profits in the form of dividend/ director's fee, claim use of home as an office, wind up my company or decide not to, invest in pension schemes  or, should i come from outside the UK,  make capital gains tax disposals before taking up residence, tell acadmics to teach abroad for twelve months (not sure that one still works, i am retired), tell a vicar to nominate a retirement home and let it till he gets too old to vick any more, is any of this avoidance?

I always take avoidance  to mean articificial schemes to frustrate the purpose of the law while complying with the letter.   My rule of thumb was, if I understand it, it's legitimate tax planning.  If I don't understand it, it's avoidance.  If a banausic client asked me  what to "put down" , it's evasion.  

There most definitely shouldn't be such a word! It's exactly the sort of conflation the ruling zombies are trying to foist upon us and they'll apply it to anything vaguely Deming.

You simply need the Monty Python test; if it starts to look silly, it probably is and is most likely therefore a scam/evasion.

If it looks slightly sensible, it's probably avoidance.

 

 

 

SDLT avoidance

David Gordon FCCA | | Permalink

Clearly HMRC got this one right, and the tax advisers involved need kicking. Tax, contract, employment, and company law are not seperate universes. Before advising clients one should always consider  associated chapters in the rule books.

Nevertheless, this constant pressure to move to a "Do what I think you should do" rather than what "The law says I may do" must always be resisted..

Our servants in HMRC are quite as expert as their opposite numbers in using the letter of tax regulation to achieve inequitable, oppressive and plain daft results.

One taxpayer who avoids £1,000,000 is still only one taxpayer, compared to 1,000 CIS taxpayers whose refunds are delayed or messed about with, 

 

 

 

This is of course true.

ken of chesterl... | | Permalink

This is of course true. Sometimes not just daft but  iniquitous.

LyneT's picture

 

LyneT | | Permalink

 

I have been trying to work out how these schemes work, and I wonder if I am now reading this correctly.

My assumptions:

The scheme was set up by structuring the purchase through a limited company. 

The property was distributed as a dividend.

The company argued that you had to look through the company and that becasue the final owner had paid nothing, the purchase price was nothing.

The scheme failed because

1,  The company had not carried out the company law requirements for declaring the dividend

and

2.The uiltimate owner had provided the purchase price.

So, I am assuming that even if the company had carried out the company law requirements for declaring the dividend, then the scheme would have still failed?  Is that right?

Vardy scheme

ken of chesterl... | | Permalink

LyneT wrote:

 

I have been trying to work out how these schemes work, and I wonder if I am now reading this correctly.

My assumptions:

The scheme was set up by structuring the purchase through a limited company. 

The property was distributed as a dividend.

The company argued that you had to look through the company and that becasue the final owner had paid nothing, the purchase price was nothing.

The scheme failed because

1,  The company had not carried out the company law requirements for declaring the dividend

and

2.The uiltimate owner had provided the purchase price.

So, I am assuming that even if the company had carried out the company law requirements for declaring the dividend, then the scheme would have still failed?  Is that right?

I suppose we'll have to wiat to see how it works. eg- how can a newly formed company pay a divided if  it hadn't made any profits?  And how did the gorup pay the vendor without payng SDLT? Unless of course it was  already owned within the group.

 

Details    1 thanks

The Limey | | Permalink

There's enough details in the link above to see how it was supposed to work.

ken of chesterle street wrote:

I suppose we'll have to wiat to see how it works. eg- how can a newly formed company pay a divided if  it hadn't made any profits? 

Non-distributable reserves of a (private) company can become distributable by following procedures laid out in the Companies Act. See Part 23.

Quote:

And how did the gorup pay the vendor without payng SDLT? Unless of course it was  already owned within the group.

The way in which the scheme attempted to work was because of a clause inserted into the legislation that allows for companies to purchase on behalf of another, acting as a middleman. In such a circumstance, it would obviously not be correct to charge SDLT twice.

Implementation

Ian Bee | | Permalink

I would not even pretend to be an expert on SDLT, but my understanding is that the scheme used a genuine relief to prevent double taxation, together with a dividend from an unlimited company which is a transfer for nil consideration.

The scheme fell down because of faulty implementation, which means that it might not be the test case that HMRC want. In fact HMRC only introduced the Company Law point at the last minute. The Tribunal did mention in passing that they did not think the scheme worked anyway, but it remains to be seen if HMRC will take another tax payer with a properly implemented scheme to the FTT.

The lesson to be learned is that getting all the ducks in a row is important. Even on more basic tax planning arrangements, such as dividend payments, HMRC is perfectly entitled to look closely at the paperwork and see if what you thought was happening actually did.

Back to basics

The Limey | | Permalink

Ian Bee wrote:

The lesson to be learned is that getting all the ducks in a row is important. Even on more basic tax planning arrangements, such as dividend payments, HMRC is perfectly entitled to look closely at the paperwork and see if what you thought was happening actually did.

Totally agree. I don't understand why HMRC don't challenge on the basics more often. Given what people say on here, they'd probably get a lot of post-dated stuff, which then has criminal law consequences.