Wealthy homebuyers have already found ‘loopholes’ to avoid paying the new top rate of stamp duty land tax, the Financial Times reported at the weekend.
Wealthy homebuyers have already found ‘loopholes’ to avoid paying the new top rate of stamp duty land tax, the Financial Times reported at the weekend.
The Finance Bill applies SDLT at 7% on the purchase of a residential property where the consideration is more than £2m and the effective date of the transaction is on or after 22 March 2012.
‘Tax lawyers are devising schemes to help those affected by the tax ... to get round paying it,’ the FT said. ‘One of the new avoidance schemes, marketed by a handful of London-based solicitors, involves buyers signing multi-year leases that are automatically renewed on a rolling basis. As the value of each lease is much less than the freehold of the house, the top rate of stamp duty can be circumvented.’
The paper quoted David Saleh, Partner at the law firm Clifford Chance, as saying that ‘the industry should not be focused on devising, marketing or selling aggressive stamp duty avoidance schemes to homeowners, and buyers should beware about using them’.
SDLT schemes may be a ‘valid option’ in principle where clients are properly advised, according to a ‘factsheet’ published last week by the Chartered Institute of Taxation and the Association of Taxation Technicians. But CIOT/ATT members involved in such schemes should be aware that the schemes may be challenged, the tax bodies warned, particularly in the light of the government’s intention to close future SDLT schemes with effect from 21 March 2012 ‘where appropriate’.
George Osborne said at Budget 2012 that he regarded tax evasion and aggressive tax avoidance as ‘morally repugnant’. Stamp duty avoidance by using companies to buy expensive residential property was ‘a major source of abuse, and one that rouses the anger of many of our citizens’, he said.
Warning
The CIOT/ATT factsheet was prepared, according to a note on the CIOT website, ‘following on from the warning issued last month to solicitors by the Solicitors Regulation Authority (SRA)’. The factsheet reminded members of their ‘obligation’ to comply with guidance on professional conduct in relation to taxation, particularly chapter 7 on tax avoidance.
That guidance, updated in January 2011, said: ‘Where a member is considering arrangements which may be viewed as artificial by the tax authorities, he should consider carefully the risks and merits. He should do this in the light of the client’s wider interests because of the risk that the arrangements may be challenged by the tax authorities.’
The guidance was issued jointly by the CIOT, ATT, ACCA, ICAEW, ICAS, IIT and STEP. Members are required, according to paragraph 2.1, to ‘comply with relevant laws and regulations and avoid any action that discredits the profession’.
Enforcement action
The SRA, part of the Law Society, regulates more than 120,000 solicitors in England and Wales. It said in a ‘warning notice’ issued on 16 February that it was ‘concerned’ about the promotion or facilitation of SDLT schemes, particularly those involving residential properties. It had already taken ‘enforcement action’ in a number of cases, and further cases due to come before the Solicitors Disciplinary Tribunal could result in substantial penalties, it said. A solicitor considering becoming involved in the implementation or promotion of such a scheme should consider whether he or she could comply with the principles set out in the SRA Handbook.
‘Whilst all the principles may be relevant, some require particular attention – integrity, independence, best interests of the client, behaving in a way that maintains the trust the public places in you and the provision of legal services,’ it said.
Public trust
The SRA pointed out that if HMRC was successful in challenging an SDLT scheme, buyers ‘could be liable to pay the whole of the SDLT plus interest and potentially a penalty’.
It added: ‘Whilst buyers of property are free to use honest and proper tax planning to mitigate their tax liability, there are a number of risks and misconceptions surrounding SDLT schemes. If you are asked to promote or implement a SDLT scheme, buyers will place reliance on you to act with integrity, independently, and to consider whether an SDLT scheme is in their interests.
‘Even if a buyer is aware of the risks and would like to use an SDLT scheme, you should take care to act in a way that maintains the trust the public places in you and the provision of legal services. This is particularly important with SDLT schemes where significant fees can be made from the implementation of a scheme but which may, in view of the warnings by HMRC, result in financial loss to buyers and HMRC.’
What the Chancellor said about ‘aggressive tax avoidance’
George Osborne said in his Budget speech on 21 March:
‘I regard tax evasion and, indeed, aggressive tax avoidance as morally repugnant ... On coming to office, I asked Graham Aaronson QC to establish whether a general anti-avoidance rule could work in the UK tax system. He recommended that such a rule would improve our ability to tackle tax avoidance without damaging the competitiveness of the UK as a place to do business. We agree, so we will introduce one. We will consult on the details of the new rule and legislate for it in next year’s Finance Bill.
‘A major source of abuse, and one that rouses the anger of many of our citizens, is the way in which some people avoid the stamp duty that the rest of the population pays, including by using companies to buy expensive residential property. I have given plenty of public warnings that this abuse should stop, and now we are taking action. I am increasing the stamp duty land tax charge applied to residential properties over £2m that are bought into a corporate envelope. The charge will be 15%, and it will take effect today.
‘We will also consult on the introduction of a large annual charge on those £2m residential properties that are already contained in corporate envelopes, and, to ensure that wealthy non-residents are also caught by these changes, we will be introducing capital gains tax on residential property held in overseas envelopes. We are also announcing legislation today to close down the subsales relief rules as a route of avoidance.
‘Let me make this absolutely clear to people. If you buy a property in Britain that is used for residential purposes, we will expect stamp duty to be paid. This is the clear intention of Parliament, and I will not hesitate to move swiftly, without notice and retrospectively if inappropriate ways around these new rules are found. People have been warned. It is fair when money is tight, and so many families could do with help, that those buying the most expensive homes contribute more. From midnight tonight, we will introduce a new stamp duty land tax rate of 7% on properties worth more than £2m.’
Finance Bill
ge Osborne said in his Budget speech on 21 March:Finan‘I regard tax evasion and, indeed, aggressive tax avoidance as morally repugnant ... On coming to office, I asked Graham Aaronson QC to establish whether a general anti-avoidance rule could work in the UK tax system. He recommended that such a rule would improve our ability to tackle tax avoidance without damaging the competitiveness of the UK as a place to do business. We agree, so we will introduce one. We will consult on the details of the new rule and legislate for it in next year’s Finance Bill.A major source of abuse, and one that rouses the anger of many of our citizens, is the way in which some people avoid the stamp duty that the rest of the population pays, including by using companies to buy expensive residential property. I have given plenty of public warnings that this abuse should stop, and now we are taking action. I am increasing the stamp duty land tax charge applied to residential properties over £2m that are bought into a corporate envelope. The charge will be 15%, and it will take effect today.
‘We will also consult on the introduction of a large annual charge on those £2m residential properties that are already contained in corporate envelopes, and, to ensure that wealthy non-residents are also caught by these changes, we will be introducing capital gains tax on residential property held in overseas envelopes. We are also announcing legislation today to close down the subsales relief rules as a route of avoidance.
‘Let me make this absolutely clear to people. If you buy a property in Britain that is used for residential purposes, we will expect stamp duty to be paid. This is the clear intention of Parliament, and I will not hesitate to move swiftly, without notice and retrospectively if inappropriate ways around these new rules are found. People have been warned. It is fair when money is tight, and so many families could do with help, that those buying the most expensive homes contribute more. From midnight tonight, we will introduce a new stamp duty land tax rate of 7% on properties worth more than £2The current Finance Bill also includes measures:
The 15% rate is designed to tackle the sale and purchase of properties via offshore companies and will take effect from 21 March 2012.
‘In addition, the government will consult on the introduction of an annual charge on residential properties valued at over £2m owned by these persons, with the intention of legislating in Finance Bill 2013 for commencement in April 2013,’ the government said at Budget 2012.
Responding to the Budget on 21 March, John Whiting, CIOT Tax Policy Director, said: ‘Nobody can be surprised at the decision to take action against SDLT avoidance. The targeting of “non-natural persons” for both SDLT and CGT additional charges is an understandable attempt to catch all manner of vehicles but the legislation will need careful drafting to make sure the measures are practical and workable.’
Wealthy homebuyers have already found ‘loopholes’ to avoid paying the new top rate of stamp duty land tax, the Financial Times reported at the weekend.
Wealthy homebuyers have already found ‘loopholes’ to avoid paying the new top rate of stamp duty land tax, the Financial Times reported at the weekend.
The Finance Bill applies SDLT at 7% on the purchase of a residential property where the consideration is more than £2m and the effective date of the transaction is on or after 22 March 2012.
‘Tax lawyers are devising schemes to help those affected by the tax ... to get round paying it,’ the FT said. ‘One of the new avoidance schemes, marketed by a handful of London-based solicitors, involves buyers signing multi-year leases that are automatically renewed on a rolling basis. As the value of each lease is much less than the freehold of the house, the top rate of stamp duty can be circumvented.’
The paper quoted David Saleh, Partner at the law firm Clifford Chance, as saying that ‘the industry should not be focused on devising, marketing or selling aggressive stamp duty avoidance schemes to homeowners, and buyers should beware about using them’.
SDLT schemes may be a ‘valid option’ in principle where clients are properly advised, according to a ‘factsheet’ published last week by the Chartered Institute of Taxation and the Association of Taxation Technicians. But CIOT/ATT members involved in such schemes should be aware that the schemes may be challenged, the tax bodies warned, particularly in the light of the government’s intention to close future SDLT schemes with effect from 21 March 2012 ‘where appropriate’.
George Osborne said at Budget 2012 that he regarded tax evasion and aggressive tax avoidance as ‘morally repugnant’. Stamp duty avoidance by using companies to buy expensive residential property was ‘a major source of abuse, and one that rouses the anger of many of our citizens’, he said.
Warning
The CIOT/ATT factsheet was prepared, according to a note on the CIOT website, ‘following on from the warning issued last month to solicitors by the Solicitors Regulation Authority (SRA)’. The factsheet reminded members of their ‘obligation’ to comply with guidance on professional conduct in relation to taxation, particularly chapter 7 on tax avoidance.
That guidance, updated in January 2011, said: ‘Where a member is considering arrangements which may be viewed as artificial by the tax authorities, he should consider carefully the risks and merits. He should do this in the light of the client’s wider interests because of the risk that the arrangements may be challenged by the tax authorities.’
The guidance was issued jointly by the CIOT, ATT, ACCA, ICAEW, ICAS, IIT and STEP. Members are required, according to paragraph 2.1, to ‘comply with relevant laws and regulations and avoid any action that discredits the profession’.
Enforcement action
The SRA, part of the Law Society, regulates more than 120,000 solicitors in England and Wales. It said in a ‘warning notice’ issued on 16 February that it was ‘concerned’ about the promotion or facilitation of SDLT schemes, particularly those involving residential properties. It had already taken ‘enforcement action’ in a number of cases, and further cases due to come before the Solicitors Disciplinary Tribunal could result in substantial penalties, it said. A solicitor considering becoming involved in the implementation or promotion of such a scheme should consider whether he or she could comply with the principles set out in the SRA Handbook.
‘Whilst all the principles may be relevant, some require particular attention – integrity, independence, best interests of the client, behaving in a way that maintains the trust the public places in you and the provision of legal services,’ it said.
Public trust
The SRA pointed out that if HMRC was successful in challenging an SDLT scheme, buyers ‘could be liable to pay the whole of the SDLT plus interest and potentially a penalty’.
It added: ‘Whilst buyers of property are free to use honest and proper tax planning to mitigate their tax liability, there are a number of risks and misconceptions surrounding SDLT schemes. If you are asked to promote or implement a SDLT scheme, buyers will place reliance on you to act with integrity, independently, and to consider whether an SDLT scheme is in their interests.
‘Even if a buyer is aware of the risks and would like to use an SDLT scheme, you should take care to act in a way that maintains the trust the public places in you and the provision of legal services. This is particularly important with SDLT schemes where significant fees can be made from the implementation of a scheme but which may, in view of the warnings by HMRC, result in financial loss to buyers and HMRC.’
What the Chancellor said about ‘aggressive tax avoidance’
George Osborne said in his Budget speech on 21 March:
‘I regard tax evasion and, indeed, aggressive tax avoidance as morally repugnant ... On coming to office, I asked Graham Aaronson QC to establish whether a general anti-avoidance rule could work in the UK tax system. He recommended that such a rule would improve our ability to tackle tax avoidance without damaging the competitiveness of the UK as a place to do business. We agree, so we will introduce one. We will consult on the details of the new rule and legislate for it in next year’s Finance Bill.
‘A major source of abuse, and one that rouses the anger of many of our citizens, is the way in which some people avoid the stamp duty that the rest of the population pays, including by using companies to buy expensive residential property. I have given plenty of public warnings that this abuse should stop, and now we are taking action. I am increasing the stamp duty land tax charge applied to residential properties over £2m that are bought into a corporate envelope. The charge will be 15%, and it will take effect today.
‘We will also consult on the introduction of a large annual charge on those £2m residential properties that are already contained in corporate envelopes, and, to ensure that wealthy non-residents are also caught by these changes, we will be introducing capital gains tax on residential property held in overseas envelopes. We are also announcing legislation today to close down the subsales relief rules as a route of avoidance.
‘Let me make this absolutely clear to people. If you buy a property in Britain that is used for residential purposes, we will expect stamp duty to be paid. This is the clear intention of Parliament, and I will not hesitate to move swiftly, without notice and retrospectively if inappropriate ways around these new rules are found. People have been warned. It is fair when money is tight, and so many families could do with help, that those buying the most expensive homes contribute more. From midnight tonight, we will introduce a new stamp duty land tax rate of 7% on properties worth more than £2m.’
Finance Bill
ge Osborne said in his Budget speech on 21 March:Finan‘I regard tax evasion and, indeed, aggressive tax avoidance as morally repugnant ... On coming to office, I asked Graham Aaronson QC to establish whether a general anti-avoidance rule could work in the UK tax system. He recommended that such a rule would improve our ability to tackle tax avoidance without damaging the competitiveness of the UK as a place to do business. We agree, so we will introduce one. We will consult on the details of the new rule and legislate for it in next year’s Finance Bill.A major source of abuse, and one that rouses the anger of many of our citizens, is the way in which some people avoid the stamp duty that the rest of the population pays, including by using companies to buy expensive residential property. I have given plenty of public warnings that this abuse should stop, and now we are taking action. I am increasing the stamp duty land tax charge applied to residential properties over £2m that are bought into a corporate envelope. The charge will be 15%, and it will take effect today.
‘We will also consult on the introduction of a large annual charge on those £2m residential properties that are already contained in corporate envelopes, and, to ensure that wealthy non-residents are also caught by these changes, we will be introducing capital gains tax on residential property held in overseas envelopes. We are also announcing legislation today to close down the subsales relief rules as a route of avoidance.
‘Let me make this absolutely clear to people. If you buy a property in Britain that is used for residential purposes, we will expect stamp duty to be paid. This is the clear intention of Parliament, and I will not hesitate to move swiftly, without notice and retrospectively if inappropriate ways around these new rules are found. People have been warned. It is fair when money is tight, and so many families could do with help, that those buying the most expensive homes contribute more. From midnight tonight, we will introduce a new stamp duty land tax rate of 7% on properties worth more than £2The current Finance Bill also includes measures:
The 15% rate is designed to tackle the sale and purchase of properties via offshore companies and will take effect from 21 March 2012.
‘In addition, the government will consult on the introduction of an annual charge on residential properties valued at over £2m owned by these persons, with the intention of legislating in Finance Bill 2013 for commencement in April 2013,’ the government said at Budget 2012.
Responding to the Budget on 21 March, John Whiting, CIOT Tax Policy Director, said: ‘Nobody can be surprised at the decision to take action against SDLT avoidance. The targeting of “non-natural persons” for both SDLT and CGT additional charges is an understandable attempt to catch all manner of vehicles but the legislation will need careful drafting to make sure the measures are practical and workable.’
