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HMRC has won a key court victory after successfully defeating a widely-marketed scheme to avoid stamp duty land tax (SDLT). The decision – subject to any appeal – looks set to prevent £170m from being lost to the Exchequer.
The First-tier Tribunal (FTT) case involved an aggressive SDLT avoidance scheme promoted by a number of firms. The Vardy Property Group – whose chairman Sir Peter Vardy graces The Sunday Times Rich List – wanted to buy a £7.25m property, which if bought directly, 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.
At court, the group – represented by Deloitte – argued that the SDLT rules looked through the unlimited company’s purchase; and since the final purchaser had paid nothing for the property it was not liable for any SDLT.
But, the FTT 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 the SDLT was due.
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.’
New Disclosure of Tax Avoidance Scheme regulations will ensure that promoters and users of SDLT ‘subsale’ avoidance schemes will have to disclose them to HMRC. The rules will also ensure that SDLT avoidance schemes involving residential property valued up to £1m and for commercial property worth up to £5m, must be disclosed, in the same way as schemes involving more valuable properties.
HMRC says such moves will make it easier to identify SDLT dodgers.
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