The stamp taxes unit of HM Revenue & Customs (HMRC) is to become more active in challenging stamp duty land tax (SDLT) avoidance arrangements and poor compliance. On 7 June 2010, HMRC published a Spotlight article on SDLT avoidance schemes using sub-sale arrangements. Perhaps not surprisingly, HMRC is of the view that such arrangements are ineffective, particularly since the introduction of the SDLT anti-avoidance rule on 6 December 2006. The article confirmed that HMRC intends to challenge such structures and it is understood that a SDLT appeal was recently heard before the First-tier Tax Tribunal (the decision is expected shortly).
Over the coming months taxpayers can expect to see a distinct change in HMRC’s approach in this area. In addition to targeting SDLT avoidance arrangements, HMRC’s general compliance checks are likely to become more rigorous. This will in turn lead to significantly more enquiries being commenced by HMRC.
Many non-compliant taxpayers will be unaware that anything is amiss due to the fact that the SDLT treatment of some transactions is so complex that SDLT implications are often overlooked or misunderstood. For example, turnover and other leases with variable rents, require SDLT to be calculated not merely at the grant/substantial performance stage but also when the rent is finally ascertained (or at the fifth anniversary, if earlier). However, as this will normally be some years after the grant of the lease, this can be overlooked.
For many years SDLT planning has escaped close scrutiny by HMRC. This is no longer the case. Taxpayers and their advisors need to be aware that SDLT avoidance arrangements are now being targeted as part of HMRC’s general crackdown on tax avoidance. HMRC is adopting a far more robust approach when dealing with avoidance and noncompliance. Accordingly, those entering into a large number of property transactions need to ensure that their SDLT compliance is in good order. This will not only help avoid penalties and interest, it is also a requirement for those companies subject to the Senior Accounting Officer rules introduced by the Finance Act 2009.
However, it is not all doom and gloom; there remains an opportunity for taxpayers to claim a tax repayment where the rents prove to be lower than originally estimated and the SDLT is as a consequence less than first thought. In such circumstances, the overpaid SDLT can be reclaimed.