Fines for firms operating SDLT avoidance schemes

Lawyers need to avoid "enthusiastically" pushing tax avoidance schemes in conveyancing schemes, a compliance expert has warned.

John Gould, regulatory adviser to the government, made the comments following two recent cases brought by the SRA.

Two partners of Harrogate firm Abode Solicitors were fined £15,000 each by the Solicitors Disciplinary Tribunal (SDT) and also ordered to pay costs. Both cases concerned stamp duty land tax (SDLT) avoidance schemes.

Gould said the promoting of the schemes produced not only a bad outcome for clients but also numerous subsidiary issues relating to warnings and conflicts.

"Solicitors should think very carefully about leading clients into tax avoidance products particularly with an upfront cost," he said. "They often fail and when they do there is likely to be trouble."

The SDT heard how Abode partners, Richard Chan and Rajob Ali, operated SDLT avoidance schemes for house buyers and advised clients on the scheme through their own separate Seychelles-based business, which took a commission.

The SDT found the pair liable for twenty breaches, which included failing to act in the best interests of clients, acting where there was a conflict or significant risk of conflict between clients, numerous Accounts Rules breaches and failing to comply with undertakings.

However, the tribunal decided the SRA did not prove Chan and Ali acted without integrity, nor that they allowed their independence to be compromised, or that they acted in transactions which were dubious.

Meanwhile, in a separate case, Surrey firm Mundays, was fined £2,000 following an investigation brought by the SRA and had to pay £5,000 costs. 

Mundays acted in 25 transactions using an SDLT scheme to avoid paying stamp duty. The SRA said the total fees billed by the promoters through the firm, including VAT, amounted to £1,007,762.

The firm failed to inform buyers what would happen if the scheme failed which was particularly serious as the promoters of the scheme, Inventive Tax Strategies and Sterling Tax Strategies Limited, became insolvent in 2013. Furthermore, in many of the matters, lenders were not told that a scheme was being used.

The SRA said the aim of the schemes was "not only to convey title but also to enable the purchaser client to either avoid or minimise" paying SDLT as "HMRC issued technical newsletters in August 2007, June 2010 and April 2013, which demonstrated that HMRC did not consider the schemes to be legitimate tax avoidance schemes, especially since the introduction of anti-avoidance legislation in December 2006."

Valerie Toon, Mundays' managing partner, told SJ she was keen to clear up the suggestion that her firm actively promoted these schemes. In fact, it was never the firm's policy to do so and not what the SRA pursued them for. 

"It's important to understand also that these conveyancing schemes accounted for less than 1 per cent of our turnover at the time we advised on them, our advice was always in response to client requests - it was never our policy at any time to promote these schemes actively -  and we never charged extra for implementing them, which the SRA accept," said Toon.

Gould, senior partner of Russell-Cooke, advised SJ that these schemes created a conflict of interest between the lenders and buyers and that Mundays should not have been acting for both.

Commenting on the penalty imposed by the SDT, Gould said: "Although there was mitigation in that the firm had stopped operating the schemes and had made no additional charge for implementing them, the penalty might be considered lenient. The SRA entered a regulatory settlement agreement with the firm which provided for the maximum fine that the SRA could impose itself. The powers of the SDT are, of course, much greater had the case been referred."