Guidance

Stamp Duty Land Tax avoidance (Spotlight 14)

Published 11 January 2013

1. Tax Avoidance on Stamp Duty Land Tax

The vast majority of people in the UK don’t try to avoid paying tax. They pay their tax on time and without undue intervention from HM Revenue and Customs (HMRC). The small minority who do try to avoid tax, will find that HMRC is determined to challenge them and to prevent their schemes from working.

As part of that approach, HMRC challenged a Stamp Duty Land Tax (SDLT) avoidance scheme in the First-tier Tribunal (Tax Chamber) and won. The decision in this case - Vardy Properties and Vardy Properties (Teesside) Limited [2012] UKFTT 564 (TC). The decision is not being appealed and is final.

If you’ve taken part in a similar scheme to avoid SDLT, you should carefully consider how the Vardy decision applies to you and any actions you should now take.

The Vardy scheme tried to avoid SDLT by purchasing a property through a UK unlimited company. Funded by its shareholders specifically for the transaction, the unlimited company acquired the property, then immediately transferred it to its shareholders as a dividend. The scheme claimed that the purchase by the unlimited company could be ignored by the SDLT rules, and that the shareholder was not liable to SDLT as it had not paid anything for the property.

The tribunal found that the unlimited company had not followed company law requirements when declaring the dividend because the dividend had not been declared by reference to any accounts. As a result, the dividend was unlawful and the purchase by the company of the property could not be ignored under the SDLT rules, as claimed. The unlimited company was therefore liable for the tax that the Vardy group had sought to avoid.

The tribunal said that even if the dividend had been lawful, the shareholder would have been liable to SDLT as the end purchaser of the property, because it had provided consideration for the purchase indirectly by paying for the shares in the company.

This transaction took place before anti-avoidance legislation was introduced on 6 December 2006. HMRC believes this anti-avoidance legislation made clear that these kinds of schemes don’t work, and negates schemes entered into after this date.

2. Are you affected by the Vardy decision?

You’re affected by the decision if (before or after December 2006) you used either:

• the same scheme as Vardy - involving the distribution of the property by a UK unlimited company by way of a dividend
• a similar scheme to Vardy - involving another form of distribution via an intermediate company

If the proper company law requirements have not been met (because of the same fault in Vardy or because of some other fault) and the result is that the distribution was unlawful, the company will be liable to SDLT.

If the end purchaser(s) provided the money for the purchase (either directly or, like Vardy, indirectly), the end purchaser(s) will be liable to SDLT.

If you entered the same or a similar scheme to Vardy after 6 December 2006, HMRC will additionally argue that the scheme is negated by the anti-avoidance legislation.

3. What should you do now?

If you used one of these schemes and you (or the intermediate company) are under enquiry or have appealed an assessment, you now need to decide whether you accept that SDLT is due.

If you accept that SDLT is due, you will also need to decide which of you will now accept liability to SDLT and interest. Or, if you are uncertain, you may accept liability yourself to settle the matter without delay. This will prevent further interest accruing.

You should contact HMRC to discuss how you or the company can pay.

If you don’t accept that SDLT is due, you will need to explain to HMRC why you think that is the case. You also need to provide them with the appropriate documents to support your position if you haven’t already done so.

HMRC is aware that some intermediate companies have already been dissolved, although it’s possible that the company may be liable to SDLT. Where this has happened, HMRC will still seek to recover SDLT rightfully due.

If you have used an SDLT scheme similar to the ones outlined in this article and have not been contacted by HMRC, you can still contact HMRC to discuss matters.