Stamp Duty Land Tax
Stamp Duty Land Tax (SDLT) was introduced in 2003 and replaced the stamp duties which were previously in place.
The new SDLT legislation was very complex and its very complexity led to a number of schemes being formulated with a view to avoidance of SDLT.
Latterly these schemes were being promoted quite aggressively on both residential and commercial property transactions, especially high net worth ones where the SDLT payable would be calculated at the rate of 4% of the purchase price.
The cost to the purchasers of participating in any scheme was not cheap. They benefitted to the extent of 50% of the SDLT saving and the other 50% was payable as a fee to the promoters of the scheme.
Unfortunately, the schemes were themselves both complex and artificial and had the added disadvantage that their efficacy had never been properly tested in a judicial challenge so that there was no guarantee they would work. They were, however, becoming sufficiently prevalent that the government decided that amending legislation was required and this was introduced in the last Budget. Although the changes proposed are themselves highly technical the guidance notes produced by HMRC which accompany the draft legislation do explain fairly clearly and succinctly what is involved.
These guidance notes can be summarised as follows:-
- The sub-sales rules and the alternative property finance reliefs cannot be combined to remove all SDLT charges on the purchase of an interest in land.
- The alternative property finance reliefs cannot be abused by purchasers setting themselves up as a “financial institution” by acquiring a Consumer Credit Licence.
- The rules governing the SDLT liability on transactions involving exchanges of land have been changed. The current SDLT exchanges rules were introduced to ensure that exchanges were appropriately taxed by imposing a charge on the market value of the interest acquired. The change to these rules ensures that SDLT avoidance will not be possible by the manipulation of the market value of the interest acquired.
The SDLT avoidance schemes currently being offered will need to be reviewed by those promoting them in the light of these changes. Whether they will survive or be replaced by something else remains to be seen. Until any one scheme has been ruled upon by the courts there is no certainty that it will work. It is not therefore something Hart Brown would recommend to its clients.
This article contains information of general interest about current legal issues. It does not give legal advice and specific advice should always be sought about your particular circumstances. We will be happy to assist.
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