Stamp Duty Land Tax avoidance: update (Spotlight 19)
Published 12 June 2013
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The First-tier Tribunal has decided that another scheme designed to avoid Stamp Duty Land Tax (SDLT) on a house purchase does not work.
The scheme involved a house purchase taking place by way of a 2 stage transfer, in order to take advantage of the ‘transfer of rights’ rules.
For the first step in the scheme, a company agreed to buy the house from the vendor. Then, before completion, the vendor, the company and Mr Allchin (the real purchaser) entered into a deed of novation (agreement of transfer) under which Mr Allchin would take the company’s place as purchaser.
The scheme was designed to make sure that most of the purchase price was paid over before the novation took effect. The scheme promoter believed this would minimise the amount on which SDLT could be charged.
The First-tier Tribunal (FTT) judge upheld the view of HM Revenue and Customs (HMRC). That a novation was not a transfer of rights and that SDLT had to be paid on the full £2,450,000 cost of the property.
The judge decided that even if there had been a transfer of rights, the full amount of SDLT would have been payable. This is because payment for the property had all been provided directly or indirectly by Mr Allchin.
In doing so, the judge accepted the tribunal’s reasoning in the ‘Vardy case’, providing further support for the view of HMRC about ‘indirect payments’ in transfer of rights transactions.
The Tribunal judge also commented on weaknesses in the scheme and its implementation.
As the judge said:
It is clear that the use of a novation was not clearly thought out from a legal point of view…..
and that there was no evidence that the novation actually took place [at the point the scheme required].
HMRC will closely scrutinise the facts and underlying documents in every case. A scheme that has not been properly implemented is likely to fail. Even if, unlike in this case, there was a theoretical chance it may work.
HMRC will continue to challenge users of this type of scheme. You can find out more about the Vardy case, and what you should do if you are using this type of scheme in Stamp Duty Land Tax avoidance (Spotlight 14).