STAMP duty avoidance by businesses is currently under the taxman’s spotlight.
HMRC recently won an important legal victory against a company that used a ‘sub-sale relief’ rule to avoid £290,000 of stamp duty on a business park in Stockton.
Such schemes, HMRC says, currently cost the public £170m a year. The case makes clear HMRC is prepared to take on stamp duty avoidance schemes.
Such schemes often need to be disclosed by their promoters in advance of detailed implementation which means HMRC can come to court well prepared for battle.
George Osborne raised the top rate of stamp duty from 5% to 7% in the 2012 Budget, and also introduced more penal rates for certain houses bought by companies. He said: “On this specific issue of stamp duty avoidance, rich people... who put homes into companies to avoid stamp duty, that is completely unacceptable and we are going to come down on that practice like a tonne of bricks.”
Despite that threat, the rise in the top rate of stamp duty led to a rush from many professionals and businesses to find ways around it. As well as exploiting the sub-sale relief rules which were the subject of the recent court case, there are variants in the market, many of which are marketed with the claim that HMRC has not successfully challenged them. Until now, those claims were probably valid, but only on the basis that HMRC had not challenged them.
This court case perhaps marks a change, and we might expect HMRC to be much more robust in the future on stamp duty avoidance mechanisms.
Meanwhile, consultations are taking place on a wider General Anti Avoidance Rule. Its intention is that HMRC will be able to challenge arrangements whose main purpose is the avoidance of tax.
Chartered tax advisers are well placed to help taxpayers manage their tax liabilities by the careful use of tax reliefs. Those who wish to manage tax affairs, without falling foul of the moral tide, may wish to include a chartered tax advisor as part of their financial planning team.
:: Tim Mallon is tax partner at Ryecroft Glenton and chairman of the North East England branch of the Chartered Institute of Taxation