HMRC wins battle against SDLT avoidance

Successful court challenges against stamp duty land tax (SDLT) avoidance schemes by HM Revenue and Customs (HMRC) have protected almost £400 million of taxpayers’ money in the last year.

In its latest success, HMRC protected £68 million relating to an artificial scheme involving the purchase of the former Dickens and Jones building in Regent Street, London by a company who tried to avoid paying £2.6 million SDLT by selling the leasehold interest to a partnership in which it had a 98% interest.

HMRC challenged the decision of the Upper Tribunal, which had said the scheme worked, and then took the case to the Court of Appeal.

The Court of Appeal judge (Lord Justice Lewison) said that the company (DV3 Regent Street Limited) had claimed to have devised a simple and elegant scheme to avoid SDLT. But, following the Court’s decision, all that the scheme had actually achieved was to shift the obligation to pay SDLT from the company to its partnership. This judgement affects 87 follower cases.

David Gauke, Exchequer Secretary to the Treasury, said:

“This case shows that HMRC will challenge the designers of tax avoidance schemes, and those who use them taking them to the highest court in the land if necessary. This is another excellent win that will protect the money of hard-working taxpayers.

“This Government has provided HMRC with nearly £1 billion of additional funding to tackle the issues of avoidance, evasion and fraud and to ensure it collects the tax that is due.”

 
Notes for editors

1. Links to other cases over the past year:

• 6 Sept 2012 - Vardy Properties and Vardy Properties (Teesside) Ltd v HMRC - £170 million
• 27 March 2013 - Edward Allchin v HMRC - £7 million
• 5 July 2013 - Project Blue Ltd v HMRC - £135 million
• 25 July 2013-  HMRC v DV3 RS Limited - £68 million

2. The scheme involved in the latest judgement was designed to take advantage of the sub-sale rules for SDLT and the rules that deal with transfers of interests to partnerships. DV3 Regent Street Limited (DV3) set up a BVI limited partnership with three connected companies and a unit trust. DV3 had a 98% interest in the partnership. On the same day that it acquired the head leasehold interest in the Dickins and Jones building, DV3 transferred it to the partnership. They argued that because DV3 and people connected to it were the partners in the partnership, the SDLT partnership rules meant that the property was treated as transferred for nil consideration and no SDLT was payable.  But the Court of Appeal agreed with HMRC that the SDLT partnership rules did not apply in that situation and tax was due on the full purchase price.

3. HMRC has issued three Spotlights which warn about SDLT schemes:

- Spotlight 10: Stamp Duty Land Tax avoidance
- Spotlight 14: Stamp Duty Land Tax avoidance
- Spotlight 19: Stamp Duty Land Tax avoidance - update

4. Follow HMRC on Twitter @HMRCgovuk

5. HMRC’s flickr channel www.flickr.com/hmrcgovuk