At SDLT Working Together Steering Group Meeting in January 2011the Inland Revenue issued the following guidance:

The HM Inland Revenue ("HMRC") are now challenging  the following types of scheme that they have identified as being in use for the avoidance of SDLT:

• Where the property is sold to an intermediate party (as sub-sale) and is then re-sold in shares to buyers – this is likely to include  the use Special Purpose Vehicle.

• Where an application for forms of financial relief is combined with a sub-sale.

• Using a partnership in a sub-sale to reduce the level of Chargeable Consideration declared to the HMRC by using the Special Partnership Computational Rules.

• Combining a transfer of a property by way of assignment or gift with a sub-sale.

Linking Up the Payment of SDLT to HMRC With Transactions Registered  at HM Land Registry

This is a rare piece of ‘joined up thinking’ by a government department.  HMRC  are now undergoing a process of comparing the Stamp Duty Land Tax Return (‘SDLT1’) with the transactions registered at HM Land Registry.  Where HMRC find a discrepancy in the information provided in the SDLT1 and the information submitted to HM Land Registry for example, in the Transfer Deed, HMRC will carry out a risk assessment and decide whether or not to make a compliance check.

Transactions Where SDLT1 Has Not Been Submitted

Where a transaction has been notified or registered at HM Land Registry but the SDLT1 form has not been submitted to HMRC, the HMRC will make a determination of the SDLT that they believe is due and has been under-declared.   It should be noted that if 30 days have passed since the completion of the transaction, a further fine  for the late submission of SDLT1 will also be levied.

Other Cases That Will Attract Further Investigation by HMRC

When the HMRC decides to look more closely at a transaction this is termed as making a ‘discovery assessment’.   HMRC are now considering making discovery assessments on transactions even where the usual 9 month enquiry window has elapsed especially where the SDLT1  and any accompanying  document do not fully disclose the details of the avoidance scheme being used.

Stamp Duty Land Tax  Avoidance Scheme Promoters

HMRC have warned that they will use the full range of their information powers to identify and challenge those parties that are promoting tax avoidance schemes as well as the scheme users, who do not notify the HMRC of the marketing and use of such schemes.

It should be noted that even though the HMRC may issue an Scheme Reference Number (‘SRN’) when they are notified of a SDLT tax avoidance scheme, this does not represent their acceptance of the scheme – the SRN is simply an acknowledgement that they have been informed of the scheme.  The scheme may still be challenged by HMRC on a case by case basis.

Time Limits for HMRC Action:

HMRC can open enquiries from either the date on which the SDLT1 was filed or the date the SDLT1 was delivered or amended, whichever is the later date.  HMRC have noted that buyers that are using tax avoidance schemes are submitting a letter of disclosure in which they outline the details of the transaction they are entering into, but do not submit a SDLT1 in respect of the transaction.

The HMRC  will open enquiries from the date on which the SDLT1 is filed and the period of enforcement will run from the date of the completion of the transaction.  A letter of disclosure or notification of a tax avoidance scheme does not establish a time limit for HMRC enquiry.

Recovery of  SDLT by assessment is currently possible for up to 6 years from the date of the completion of the transaction (‘the effective date of the transaction).  If HMRC can prove that SDLT has not been paid due to fraud or negligence, the enforcement period can be up to 21 years.

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