HMRC has won a landmark legal victory over a firm that used a stamp duty avoidance scheme to avoid paying £290,000 in tax, in a win HMRC says could see it net up to £170m in tax.
In 2006, property firm Vardy Property Group bought a business park in Stockton-on-tees for £7.25m. It used a stamp duty loophole known as sub-sale relief to avoid paying £290,000 in stamp duty.
Sub-sale relief is legitimately used by intermediaries, such as housebuilders, to avoid paying stamp duty twice, first when they buy the house and again when they sell it.
To access the relief, Vardy structured the purchase through a newly formed unlimited company. The new firm then immediately distributed it as a dividend back to Vardy as the shareholder company.
As Vardy had paid nothing for the property, it argued it was not liable for stamp duty. But on 6 September, the First Tier Tribunal found the unlimited firm had not followed company law and the ultimate owner in the scheme had indirectly provided the purchase price.
It ruled that the scheme failed and Vardy was liable for stamp duty.
A HMRC spokesman says the value of schemes “inextricably linked” to the decision stands at £170m.
HMRC director-general of business tax Jim Harra says: “The decision shows that the courts will see through arrangements which are put in place just to avoid tax.”
Largemortgageloans.com director Ian Gray says: “There are so many schemes out there and more are appearing all the time. The Government needs to be seen to be doing something about it.”