HMRC: new clampdown on Stamp Duty avoidance by home buyers

The taxman has announced new rules following a major legal victory in a Stamp Duty Land Tax case involving property.

Anyone who tries to use an avoidance scheme – for example, by buying through a specially set up company – to dodge Stamp Duty, will have to disclose it to the taxman. Anyone who promotes such a scheme will also have to disclose it.

The particular case involved an aggressive SDLT avoidance scheme which a number of accountancy firms have been promoting, said HMRC.

A company in the Vardy group wanted to acquire property costing £7.25m. That 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.

Since the final purchaser had paid nothing for the property, it was argued that it was not liable for any SDLT.

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

The decision defeats a widely-marketed scheme used by home buyers and others who have tried to get out of their liability for SDLT.

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.”

David Gauke, Exchequer Secretary to the Treasury, said: “This Government has been clear that when someone buys a house in the UK they must pay Stamp Duty.

“At the Budget we announced a number of steps that we are taking to crack down on people who try to avoid this responsibility.

“Today’s legislation will mean that HMRC will have access to more information about property tax avoidance. They will not hesitate to use it to close down avoidance schemes.

“The Government is totally committed to tackling this kind of tax avoidance scheme and HMRC will take cases through the courts whenever necessary.”