Her Majesty's Revenue & Customs believes that there is evidence that some individuals in the UK transfer high-value residential property into special purpose vehicles (SPV), which are companies or other entities such as trusts created for the sole purpose of tax avoidance. The way that this works is that when the shares in the SPV are sold to a purchaser the purchaser effectively becomes the beneficial owner of the property and one of the advantages of this is that this avoids the need to pay stamp duty land tax (SDLT) on the disposal of the property.

The Government feels that this is unfair to the majority who do pay SDLT. Therefore a consultation has been produced which puts forward the idea of an indirect charge. This is a charge which would approximate to the SDLT that would be due if the property had been transferred as a land transaction. The Government has considered the following three-stage test stating that the Indirect charge should only apply where:

1. There is an acquisition of a substantial interest in a company - the Government has proposed to apply a 75 per cent ownership test;

2. which is in limited ownership - for the purposes of the indirect charge this means that the company must be controlled (a 51 per cent controlling interest) by five or fewer persons (individuals or companies); and

3. which is a property company - the Government has proposed that 90 per cent of the assets must comprise of property.

The Government intends to impose a charge on vehicles worth £1 million or more and to set the tax rate at 4 per cent, which is in line with the current top rate of SDLT for residential property transactions, therefore negating the tax advantages of these vehicles.

The consultation document can be found here.