Stamp Duty Land Tax (SDLT) avoidance schemes have returned to the headlines following the handing down of a judgement of the First-Tier Tax Tribunal in the case of (1) Crest Nicholson (Wainscott) Limited (2) Crest Nicholson (South East) Limited (3) Crest Nicholson Operations Limited –v- The Commissioners for Her Majesty’s Revenue & Customs, [2017] UKFTT 134 TC05628.

Crest Nicholson Case

Crest Nicholson, a FTSE 250-listed house builder, sought to avoid SDLT when purchasing development land at Hoo Road, Wainscott, Rochester, Kent (“the Land”) for the sum of £32,382,120 in October 2006. The house builder should have been liable to pay SDLT of £1,295,284.80 on the purchase of the Land. Instead, Crest Nicholson sought to use a loophole previously available, under Section 45 Finance Act 2003 (“Section 45”) to avoid paying the SDLT.

HMRC challenged the arrangement and issued a determination on 23 March 2011 demanding payment of the unpaid SDLT (£1,295,284.80). The determination was challenged by Crest Nicholson and fell to be decided by the First-Tier Tax Tribunal.

Judge John Clark presided over the Tribunal hearing and found against Crest Nicholson in favour of HMRC. Judgement was handed down on 1 February 2017.

Commenting on the judgement, HMRC’s Director General, Customer Compliance, Jennie Granger, said:

“This decision makes it clear that setting up artificial and complex arrangements involving sub-companies to avoid paying tax doesn't work.

“It's another important success that’s protected taxpayers’ money. This win sends a clear message that tax avoidance is expensive and self-defeating.”

In its press release HMRC went on to say that:

“[the] decision is likely to have an impact on more than 700 other cases, potentially protecting £65m of taxpayers’ money.”

This challenge follows other victories for HMRC in relation to SDLT Avoidance Schemes, most notably in Commissioners for Her Majesty's Revenue and Customs v DV3 RS Ltd Partnership.

SDLT Avoidance Schemes

As with Crest Nicholson, many SDLT Avoidance Schemes took advantage of Section 45. Section 45 provided for an exemption on SDLT payments for sub sales (this is where back to back sales of land take place). Section 45 existed to prevent a double charge to SDLT in sub sale arrangements. This exemption to SDLT was widely abused.

This abuse was first raised publically by HMRC in the summer of 2010. On 5 August 2010, HMRC published a spotlight article (“Spotlight 10”) on SDLT Avoidance Schemes. It stated:

“Where HMRC find property sale arrangements that have been artificially structured to avoid paying the correct amount of SDLT, HMRC will seek to actively challenge those, through the courts where appropriate.”

Spotlight 10 has been followed by a number of subsequent spotlights on the issue of SDLT Avoidance. HMRC has repeatedly asserted its intention to challenge such schemes

On 21 March 2012, when delivering his the budget, the Chancellor George Osbourne announced a crackdown on SDLT tax avoidance schemes. Section 45 was subsequently amended by the Finance Act 2013 with retrospective effect from 21 March 2012.