The High Court has thrown out an appeal against the retrospective closing of a stamp duty loophole that allowed people to cut their tax bill.
In June 2013, the Government amended the Finance Bill to close down schemes that use the “transfer of rights” rules to avoid stamp duty, with effect from 21 March.
The appeal was brought by participants in one such scheme run by Blackfriars Tax Solutions. They argued the clampdown was disproportional because it would only save the HMRC around £7m.
In her ruling, Mrs Justice Andrews said the argument came nowhere near the “very high hurdle” necessary to be considered disproportionate and the legislation was “well within” the power of the state.
She says: “The claimants had no legitimate expectation that they would be able to acquire property of substantial value, and pay only a fraction of the [stamp duty] which would ordinarily have been due on the transfer of that property to them, whilst other taxpayers who acquired land of a similar value and who abided by the spirit of the original legislation paid the [stamp duty] in full.”
HMRC director general business tax Jim Harra says: ““Our commitment to stop this kind of Stamp Duty Land Tax abuse was made clear with the warning given by the Chancellor in Budget 2012 and the introduction of retrospective legislation to tackle the problem in the Finance Act 2013.
“Because of that, it should have been obvious to both promoters and users of this scheme that it could be subject to retrospective action. Our approach to tackling the scheme has now been backed by the courts.”
HMRC was cracking down on other types before the 2013 Budget. In September 2012, a tribunal ruled against the use of sub-sale relief by a company to avoid stamp duty. Sub-sale relief is legitimately used by intermediaries, like house builders, to avoid paying stamp duty twice – first when they buy the house and again when they sell it.
In her ruling on the Blackfriars appeal, Mrs Justice Andrews says: “Benjamin Franklin famously identified tax as one of life’s two certainties. However, the aphorism must be subject to some qualification; for as long as taxes have existed, people have been devising ways to avoid paying them without breaking the law.”