Stamp Duty Land Tax - Is Planning Still Possible?

Stamp duty land tax is something that most people are aware of, if only because of having to pay it when moving home. However, it has suddenly become very high profile.

Judicious leaking pre-Budget led us to believe that wealthy foreigners were engaging in avoidance of SDLT on a massive scale on high-end residential property, particularly in London, by 'enveloping' the property in an offshore company. This has led to the imposition of a penal 15% charge where a residential property valued at more than £2m is acquired by a company, whether UK or offshore, (other than certain developers) and a proposed annual charge on such properties already held in companies (which could be up to £140,000 pa).

Ironically, the press coverage missed the fact that such structures did not avoid SDLT and were used by non-UK domiciliaries to keep their UK properties outside the inheritance tax net. What this actually did was focus attention on the avoidance of SDLT.

Stamp duty in the spotlight

For most people, SDLT is seen as a given – if you buy a property, you have to pay the tax. The fact is that for some years avoidance of SDLT on expensive residential and commercial properties has been relatively commonplace. This had been kept under the radar but it is now very much in the spotlight. The planning that has typically been used involved a combination of sub-sale relief together with 'something else' – the most recent manifestation involved the grant of an option – with the purported end result being that the SDLT is lost altogether. Many boutique firms were proactively offering such planning. It has to be said that the quality of implementation and the technical analysis was patchy; some were very good, others poor. HMRC, having kept its head down for a long time, is now actively challenging such planning and opening enquiries wherever it finds evidence of such avoidance. Litigation is likely to follow.

At the same time, a number of other factors have combined which will make SDLT planning much more difficult going forward.

The disclosure (DOTAS) rules will be changed with effect from Royal Assent of the Finance Bill such that most SDLT planning will have to be disclosed. Previously any schemes that relied on planning which was substantially the same as what was made available before April 2010, were 'grandfathered' i.e. disclosure was not required. This covered all the variants of the sub-sale planning referred to above. This grandfathering will go. In...