In 2003 the then Government introduced Stamp Duty Land Tax (SDLT) as a means of overhauling the old Stamp Duty regime. The Government felt that the old regime was being abused and needed to be reformed to counter some of the more widespread avoidance techniques. The reform was imperfect.
In 2003 the previous Government introduced Stamp Duty Land Tax (SDLT) as a means of overhauling the old Stamp Duty regime (Finance Act 2003). It was perceived by the then Government that the old regime was being abused, particularly by property developers, and so needed to be reformed to counter some of the more widespread avoidance techniques. Prior to reforming Stamp Duty, they had already introduced an escalating rate of tax so that instead of all transactions attracting a 1% charge, transactions over £250,000 would attract a 3% charge, up to a maximum tax rate of 4% for transactions over £500,000. With effect from 6 April 2011, the maximum rate further increased to 5% for transactions over £1,000,000.
A careful study of the provisions of Part 4 of the 'new' Finance Act 2003 revealed, however, that far from being a well drafted and thorough piece of anti-avoidance legislation, there were in fact a considerable number of drafting defects in the statute. These centred either on unwitting omissions from the charging clauses, unwitting inclusions in the exemption clauses, or the law of unintended consequences applying to certain charging provisions. As a result, firms of tax advisers have since developed and implemented a number of strategies that have been proven to fully and successfully mitigate SDLT.
The latest strategy (or scheme) is now being used for any residential or commercial property purchase over £250,000. Her Majesty‟s Revenue & Customs (HMRC) is aware of the existence of this scheme, as it has been notified under the Disclosure of Tax Avoidance Schemes (DOTAS) regulations. Each time a client pursues tax planning using this scheme HMRC will be notified (called 'disclosure').
Under current legislation, HMRC has a period of 30 days plus nine months (approximately 10 months) from completion to raise an intention to enquire into the tax planning undertaken. If it does not do so, the planning will be deemed a success.
It is reasonable to assume that at some point in the future HMRC will seek to amend the legislation, however, until it has established how best to do so, there is a perfectly legitimate opportunity for purchasers to use tax planning to seek to make a substantial saving when buying a property. If legislation is amended, the changes are invariably not retrospective, so any tax planning measures already undertaken are very likely to remain unaffected.
We are aware that a consultation exercise is due to commence in June 2012, whereby the Government will be seeking ways in which overcome the deficiencies in the current regulations.
A window of opportunity currently remains open to save on the Stamp Duty Land Tax.
How does it work?
We would introduce you to a Specialist Legal firm with a number of years' expertise in this field.
Their scheme uses the provisions within anti-avoidance legislation that impose a charge to SDLT on a “notional” transaction. Under the scheme, the effective date for that notional transaction – and therefore the liability for the SDLT - is deferred for at least 25 years.
This scheme utilises the specific anti-avoidance measures to defer the SDLT liability. HMRC does not have powers to selectively apply the anti-avoidance legislation, and the non-exercise or assignment of the option cannot, under current legislation, interfere or reverse this process.
What about mortgage finance?
Normally, this scheme allows you to raise a mortgage on the property in your own name in the usual way as no lender involvement is required. It does not affect ownership, so title to the property remains with you.
The scheme is available to any individual or corporate entity purchasing residential or commercial land or property with a purchase price in excess of £250,000 (the threshold where SDLT becomes chargeable at 3%).
What will you receive?
Upon engagement, you will receive:
* detailed advice from the tax advisers, all of which is supported by robust Counsel's opinion
* advice covered by professional indemnity insurance
* insurance of the fees paid, to ensure a full refund if the scheme is successfully challenged by HMRC
* defence of any enquiry by HMRC up to and including first tier tribunal (tax)
What are the scheme costs?
The fees payable to the tax advisers are as follows:
£250,001 - £325,000: £3,000 + VAT
£325,001 - £400,000: £4,000 + VAT
£400,001 - £500,000: £5,000 + VAT
The tax adviser will recommend a panel solicitor that will carry out the conveyance and deploy the tax planning on completion. You are responsible for paying the conveyancing fees which will be £650.00 + VAT + disbursements for a freehold purchase (or £800.00 + VAT + disbursements for a leasehold purchase) An additional disbursement of £275.00 + VAT will be payable for legal work on behalf of the Option Company.
1.99% of purchase price (inclusive of VAT)
The fee for purchases above £500,000 includes the cost of the conveyance, which will be undertaken by the law firm providing the tax advice, however you will be responsible for all disbursements, which will include £750.00 (inc. VAT) for legal work on behalf of the Option Company.
All above fees are fully inclusive of fee protection insurance (see below).
All fees above are subject to confirmation by the tax adviser and are paid to the tax adviser on completion of the property purchase, i.e. there are no up-front fees.
Fees are non-refundable once the purchase of the property has completed, but will be fully covered by fee protection insurance if, following a successful challenge by HMRC, tax falls due.
Fee protection insurance
As the tax adviser has a wealth of experience advising on SDLT an insurer is willing to underwrite their clients‟ success. This is not through an off-the-shelf fee insurance policy but by using a bespoke schedule offering cover unrivalled in this field of tax planning.
If the tax is not successfully mitigated (i.e. if HMRC raise an enquiry within 10 months and successfully argue that the tax is due) you are covered for the total scheme fee paid (exclusive of the fee for the conveyance where this is included). You are also covered for any interest levied by HMRC for late payment of tax up to the point of enquiry.
After completion you will wait 10 months to see if HMRC wish to review the transaction. If HMRC have not written to you in this time, the tax adviser will confirm that the planning has been successful. As the individual planning will have been fully disclosed to HMRC by the solicitor on completion, under SDLT legislation HMRC has no wider power to open an enquiry subsequently. If HMRC has written to you confirming its intention to raise an enquiry and you confirm that you wish to contest the enquiry, the tax adviser will guide all negotiations with HMRC at no extra cost, to include representations up to and including First Tier Tribunal (Tax).
If at any point whilst under enquiry counsel advises settlement (i.e. to pay the tax as they believe HMRC has a valid technical argument) the tax adviser would make a claim for all insured costs under the insurance policy. You would then be left liable to pay the tax, plus interest.
Please note that the tax planning is highly structured and requires a carefully prescribed sequence of actions to be undertaken in order to comply with the legislation. For this reason it is imperative that you use a solicitor recommended from the tax advisers‟ approved panel to undertake completion of the purchase.
Key features of the Scheme
* no up-front fees
* no fee at all if the transaction does not complete
* available on property purchases above £250,000
* requires absolutely no vendor involvement
* tax advice provided by expert tax lawyers
* scheme backed up by robust tax counsel‟s opinion
* fully disclosed to HMRC on completion
* mitigates 100% of the SDLT payable
* full title to the property remains with you and ownership is unaffected
Are you suitable?
You must ask yourself:
* Am I comfortable that HMRC may challenge the transaction?
* Am I prepared to rely on an insurance policy to repay my set up fees?
* Am I prepared to pay the tax if unsuccessful?
* Am I prepared to risk retrospective application of law as, no matter how slight a chance, it can never be ruled out or insured against?
If you can answer YES to the above, using this planning is an option to create substantial tax savings.
If you would like to follow up on this option, send us an email and give us your full contact details and we will put you in touch with the Specialist Lawyers, who have provided the information on this page