Can stamp duty mitigation schemes be secured?

HRMC is certainly talking a good game: it says it will strongly challenge any shortfall, or what it sees as a shortfall, in SDLT repayments. In reaction to declining tax revenue, HM Revenue and Customs (HMRC) is using a more confrontational and competitive strategy to combat recognized tax evasion.

How does HMRC currently address recognized tax avoidance?

HMRC is currently interested in uncovering recognized tax evasion having stated in late 2011 that it would use the Land Registry’s computerized system to identify transactions where HMRC felt inadequate SDLT had been paid. The HMRC has allegedly uncovered potential SDLT evasion transactions and issued disclosure letters to buyers requiring the person to pay the “unpaid” tax along with care within a 30-day period.

How could this affect you?

You may be affected if you have used a planning structure or scheme that was developed to reduce SDLT due on the purchase of land or property in the UK during the last four years. In many situations, HMRC has already started investigating such plans, so you may already be aware of this. However, in some circumstances where the consultation window has already closed (typically nine months and 30 days after completion), HMRC now requests disclosures as standard procedure.

What to do if you receive a disclosure inquiry or assessment?

First of all, there is nothing to be scared of. It is just standard HMRC procedure and is designed to strike fear into the recipient. And guess what, it works and works well! The first thing you should do is call the tax planning provider you used and ask them to handle your correspondence. Normally this would have been included in your rate. Good providers will have given you a warranty backed by insurance, but even if you don’t have one, they should usually be able to help. Again, most providers offer a full refund of the fee in the worst case scenario, if you end up having to pay it. However, they won’t pay for it unless you’ve given them the mail to treat professionally, and they certainly won’t pay for it if you just hand over the preparations to HMRC without letting them know!

Second, don’t delay. There is a 30 day response window, just take it out directly on day 1.

Third, engage logic over emotion. HMRC is just trying to scare you into paying. In the case of a disclosure request outside the 9-month, 30-day consultation period, what must be disclosed, when all the information has already been disclosed? It is speculative on behalf of HMRC to say the least. Most disclosure requests are answered as follows: “Thank you for your disclosure request.” we know exactly what else you need, as we are not aware of anything else that needs to be revealed. Sincerely, blah blah.”

Fourth, HMRC has only brought one case to the First Tier Tax Court since the Finance Act 2003 (and with it SDLT) was introduced. They lost. This was against DV3 in 2011.

Finally, once the professionals are on board, you can sleep easy. It is no longer your problem, at least in the day-to-day sense. Rest assured that a) what you’ve done is completely legal, b) you have a fee refund, so in the worst case you’ll just have to pay back the SDLT you would have had to pay for anyway c) it’s You likely have insurance to cover additional professional fees if needed.

In summary, when deciding whether or not you want to avoid SDLT, keep the following in mind:

– Yes, it is possible to secure SDLT planning. Always find out if this is the case and if a bona fide third-party insurer is involved.

– Don’t be scared by HMRC’s intimidation tactics. The central government was involved in the largest SDLT evasion transaction on record (Chelsea Barracks) which saved Candy and Candy nearly £50m in stamp duty. But that is another story.

– It is not your fault that the legislation is poorly drafted and you are taking advantage of it. The Labor Party in 2006 bought its headquarters using SDLT evasion! What is good for the goose…

– The final killer line enjoyed by HMRC is the threat to introduce retrospective legislation. It just won’t happen. Just look at the two points above. There is also the more important question of whether or not the introduction of retrospective legislation is legal in itself.