HMRC has won a landmark victory against stamp duty avoidance schemes that could net it up to £170m in tax.
A tribunal has ruled against the use of a stamp duty loophole known as sub-sale relief when property firm Vardy Property Group bought a business park for £7.25m in Stockton-on-tees in 2006.
Sub-sale relief is legitimately used by intermediaries, such as house builders, to avoid paying stamp duty twice, first when they buy the house and again when they sell it.
To access the relief Vardy set up a new unlimited company which then bought the park. As a shareholder in the unlimited firm the property was then transferred to Vardy as a dividend.
Vardy claimed it was not the purchaser of the property so was not liable for stamp duty. On 6 September the First Tier tribunal ruled Vardy was indirectly responsible for buying the business park and had to pay the £290,000 stamp duty.
HMRC says similar loopholes were being marketed by accountants and according to its data, schemes “inextricably linked” to the case that could be affected were valued at £170m in stamp duty revenue.
KPMG stamp duty specialist Simon Yeo told the FT the case is a breakthrough and it will “make people think twice” about using sub-sale relief.
He says: “It is clear now that HMRC can go to court and win.”
HMRC director-general of business tax Jim Harra urges people not to be tempted into into schemes that are too good to be true by tax advisers and “greed”.
He says: “The decision is good news for the vast majority of taxpayers who pay, rather than try to dodge, their taxes. It shows that the courts will see through arrangements which are put in place just to avoid tax.”
Largemortgageloans.com director Ian Gray says: “The days of stamp duty mitigation are definitely not over. It is just one scheme closed but there are so many and they are coming up with more all the time. The Government needs to seem as though it is doing something about it.”
Chancellor George Osborne clamped down on stamp duty avoidance in his March Budget when he raised the rate for the purchase of homes above £2m bought by limited companies from 5 per cent to 15 per cent.
He has branded tax avoidance as “morally repugnant” and said he is “shocked” with the level of avoidance among the wealthiest.
In August, HMRC claimed to have saved £200m by closing three tax avoidance schemes and last February it clawed back an estimated £500m from Barclays avoidance schemes.
Earlier this month, the Treasury told the Treasury select committee its tax avoidance crackdown would be “proportionate and limited”.