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HMRC victory on stamp duty dodge

A landmark decision that discourages participation in schemes to avoid stamp duty land tax (SDLT) could save HMRC more than £170m in tax revenues.

26 September 2012

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The first tier tax tribunal in Vardy Properties Teesside and others v HMRC (2012 UKFTT 564 TC) ruled at the end of last week (21 September 2012) against Vardy Property Group after it sought to exploit a loophole to avoid paying SDLT on the purchase of commercial property in 2006.

A company in the Vardy group wanted to acquire property costing £7.25m, a direct purchase of 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.

The group argued that SDLT rules looked through the unlimited company’s purchase and, since the final purchaser had paid nothing for the property, it was not liable for any SDLT.

However, the first tier tribunal found that the unlimited company had not carried out properly company law requirements for declaring a dividend, and that, in reality, the ultimate owner of the property had indirectly provided the purchase price.

For either reason, the avoidance scheme failed and the SDLT was due.

The scheme has been widely marketed both to individuals and to companies as a means of avoiding SDLT, but is criticised by HMRC as ‘aggressive’.

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.”

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

The new rules will give HMRC better access to information about these avoidance schemes and those who promote and use them. They can then be challenged and closed down more quickly.

For the full judgment see http://www.bailii.org/uk/cases/UKFTT/TC/2012/TC02242.html

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Tax & Wealth structuring