HM Revenue & Customs has launched a new consultation on revisions to stamp duty land tax rules in an attempt to clamp down on schemes that claim to be able to mitigate the tax charge through the use of ‘transfer of rights’ agreements.
In the consultation paper, HMRC highlights a number of schemes that market themselves as being able to mitigate stamp duty using a “loophole” in ‘transfer of rights’ rules - often referred to as ‘subsale’ rules - in which a property is purchased by one party and immediately passed on to another before completion.
As an example, the paper highlights a situation where a couple purchase a property through a limited company structure, which immediately distributes the property to the shareholders.
The paper says some schemes have claimed no stamp duty is payable as the initial transaction is disregarded in line with the transfer of rights rules, while there was no consideration paid for the distribution of the property thereafter.
HMRC says that this can be challenged, stating that it does “not agree that the distribution of the property occurs at the same time as the completion” and is therefore not covered by the rules.
It adds that there are “very good prospects that ‘subsales’ schemes of all types seen to date... can be successfully challenged”.
HMRC highlights in this regard clauses introduced in 2006 that automatically apply the highest possible tax charge where a number of transactions are involved in a transfer of land that result in a lower stamp duty charge.
In spite of these assertions, the paper says that HMRC believes changes to subsale rules would prevent schemes from marketing themselves in this way and consequently put an end to lengthy litigations that “increase the risk of non-payment, irrespective of [the] outcomes”.
It is consulting on changes to the rules such that stamp duty is applied to both transactions in a subsale deal, with the initial buyer able to retrospectively claim a relief to recover its charge.
HMRC is additionally consulting on whether any relief offered under such rules should be offered at the minimum of the initial purchase consideration, or whether full relief could be offered in limited instances where the property is sold on at a loss.
The paper says the rule changes are part of a review of the rules announced by the chancellor at Budget 2012, as an extension to the ‘tackling tax avoidance’ programme announced at the previous year’s Budget statement.
HMRC says in the paper: “A number of promoters of SDLT [stamp duty land tax] avoidance claim that the particular wording of the current rules can be exploited to reduce or eliminate SDLT.
“HMRC and, we believe many others, consider that the rules when read correctly do not contain the perceived loopholes claimed by promoters of this abuse. It is, however, desirable to improve the legislation to stop such claims being made in the first place.”