SDLT Mitigation Scheme

[Jo17]

Has anyone come across this scheme and know how it works?

"I can confirm that if successful the scheme reduces Stamp Duty to £0. The tax consultant takes a fee of half the SDLT payable normally + VAT and our fees (the Solicitor) are £1000 + VAT for implementing the scheme on top of our conveyancing fees. This still leaves the clients with substantial savings".

Purchasing a property at £318,000 so would save approx £2,900 on the normal Stamp Duty cost of £9540.

Is this legal? Will HMRC see this as mitigation or avoidance?

[Jo17]

Hi, I've got some more information.

Client requests Tax Consultancy firm to instruct a solicitor from its SDLT panel to implement the necessary processes in order to save a proportion of the SDLT that would otherwise be payable on the purchase of the Property. If client uses own solicitor for the conveyance, then Tax Consultancy panel solicitor will advise client's Conveyancer on the same processes.

 Client understands that HM Revenue & Customs (HMRC) has a 9-month period in which to query the amount of SDLT paid on any transaction.
 The Panel Solicitor for Tax Consultants will hold the full SDLT payment (being the Fees + the Saving) in its Client account until the form SDLT5 is returned by HMRC to the Panel Solicitor. If Client uses own solicitor, then client instructs them to pass these fees to the panel solicitor appointed by Tax Consultants to hold them to their solicitors order until receipt of the SDLT5 Certificate.

 Client agrees that they will benefit from operating the process and we have had the opportunity of taking independent advice.
 Client accepts that, should the process be unsuccessful, then the full SDLT may become payable. In that event, Tax Consultancy will refund all of its Fees.
 Client will then use the Fees and the Saving together with accrued interest to pay to HMRC towards the amount notified by them as being payable by the Client.

 Tax Consultancy's fees for allowing Client access to the process will be 2% + VAT of the purchase price and where an SDLT5 is expected from HMRC, the fees due to Tax Consultancy are to be paid via CHAPS, on the day the SDLT5 is received.

In summary, the fee charged to clients for the tax planning is 2% of the purchase price of the property plus VAT. For example on cases of £500k and above the Stamp Duty Land Tax liability is 4% of the purchase price. If a property was purchased for example at a purchase price of £1m and purchaser elected to run (the tax consultants) planning they would pay a fee of £20,000 plus VAT resulting in a net saving to them of £17,000. At the point of completion the 4% SDLT would be paid into the solicitor’s client account in the normal way. The advising solicitor for the Tax Consultants would then complete the SDLT1 return and upon receipt of the SDLT5 from the stamp office, the rebate of £17,000 would be paid to the client from the solicitor’s client account. For purchases below £500k the fee is 1.5% of the purchase price plus VAT.

The rebate to Client would be paid in most cases no later than 3 weeks after completion.

The planning is supported by one of the country’s leading legal counsel and is disclosed to HMRC and has thus been allocated a corresponding scheme disclosure number. One of our (the tax consultants) principal channels to market the scheme is via accountants.

Has anyone worked with this scheme and found it to work in recent times - sorry to doubt but thought the legal loop holes were closed a number of years ago.

[Dangerous666]

I too have seen this scheme offered in the last week, and would be very interested in knowing if it is what it says on the tin. My wife and I have put an offer on a property and are just over the SD threshold and would really like to legally reduce our obligation.

[dubbs]

I'm looking for advice in this regard as well.

An extensive search of the Internet shows schemes and people asking abotu them but not those that have used them successfully and are happy to recommend.

Looking at a purchase of just under 550k it would be interesting to know how this would work and whether the mitigation causes any problems with either getting the mortgage (i.e, does any change in sale contract terms mean the mortgage provider is affected) or whether the scheme usage would be evident in a later sale causing problems when it is time to move on.

Anyone have any advice? With potential savings over 10k I can see why people are interested in using the scheme!!!

If only the SDLT was rated and levied fairly I'm sure no one would use it.

[kp999]

Hi,

I own a financial services company which has been working alongside a tax consultancy for the last 6 months. My company has referred many purchasers to them to mitigate stamp duty. As the previous post says, the client gets charged half of the stamp duty + vat.

So as far as I am aware, the scheme works.

[jetrimby]

Hi The scheme as mentioned is out there run by any PROBIZ member accountant and is now available from £250,001 upwards. Some advertise and operate it others do it a bit more selectively or not at all. It still works many of the methods have been removed but they are opertaing 6 at present (all dotas registered) and (supposedly) over 2000 through the system successfully (no failures though I think some cases are rejected at the start) Other networks etc operate similar schemes though they start at the £500,000 mark.

I have met many accountants who have used this sucessfully for clients and I have 4 in progress at the moment though only a recent member so still waiting for the first saving cheque to arrive! there are lower rates and differing conditions for properties over £1.5m

THe fees from this scheme are normally 50% of the saving plus VAT The conveyence is charged at between 0.1 and 0.15% of the property price plus disbursements VAT etc. THe only downside really is you do not use your normal solicitor but a panel solicitor from the provider, plus IF it were to go wrong you might get an interest bill from the Revenue for the late paid stamp duty. The providers do not advertise directly to avoid targeting from the Revenue so it is not widely known about (if it was I am sure the legislators would be at it!)
Hope this helps

[section 44]

I would be very careful about purchasing one of these schemes.

Promoters often refer to "successful" cases. This is incorrect and misleading. SDLT is a self-assessed tax. HMRC do not confirm that the SDLT return has been correctly submitted or what SDLT is due. The fact that an SDLT certificate (necessary to register legal title) has been issued does not mean that HMRC have approved anything.

Promoters often refer to a 9-month enquiry period. This is again misleading. HMRC can issue a discovery assessment for up to 6 years after completion.

Promoters often refer to HMRC having issued a scheme number and "approving" that the scheme works. Again this is misleading. The fact that a scheme number has been issued merely confirms that the scheme has been disclosed (which a promoter is obliged to do) and has nothing to with whether or not the scheme works.

To be successful, 6 years would have to have elapsed since completion of the property purchase and submission of the SDLT return.

The cheap and nasty end of tax planning. Buyer beware.

[adam.wroath]

Hi Section 44,
Faced with the SDLT bill on a 425K purchase I was interested when told about one of these schemes - but I'm naturally sceptical of the "too good to be true". Yours is the first post I've seen with any information about the legal status of HMRC in this regard - thank you. Is your expertise from an accounting or legal background on this?
I would greatly appreciate your comment on the following points: 1. If HMRC do follow up within the 6 yr period and reject the submission is it true that they will only request full payment of the SDLT plus interest? 2. There are a lot of claims of "success" but I've not seen any suggestions of failure. Is it your feeling that this might soon change or that this will remain a sort of "sleeping risk" with a high chance of being followed up by HMRC?

Thanks.

[section 44]

1. Possibly. The penalty rules changed 1 April 2010. There's a risk of a penalty of up to 100% of the tax due. The key issue is the basis of the penalty. For example if its for a failure to take reasonable care then no penalty should be due if professional advice was sought. However this defence would not be in point if the penalty was for (say) deliberate inaccuracy.

2. See my comments above re "success" where you are dealing with a self-assessed tax. No claim/challenge to date does not equal success. What's failure? An enquiry? An assessment? An appealed assessment being upheld? There are various schemes out there, some are technically more robust than others. To date HMRC's practice has been to change the law (block loopholes). However, HMRC have indicated that they will start to litigate. Common sense says that they will pick on technically flawed/weak schemes at the abusive end of the tax planning scale (scheme shops).

[bombardier]

I read this thread with interest last night. During a conversation with my parents yesterday evening (both in their 60's), I found out that they are using a solicitor who is offering this 'scheme'. What they were telling me about it (at least their understanding) didn't make sense, and I'd never heard of such a scheme so started googling and came across this thread.

I'm really concerned about it, and wondered if someone (section 44?!) could enlighten me further.

My main worries:

1) Does the title of the property remain in the solicitor (or holding company's) name? If they went bankrupt or into administration etc. within a set period would my parents lose their house as it's not really theirs? During the initial period following the completion of the sale do my parents have any rights to the property at all?
2) Could someone clarify the 9 months vs. 6 years subject? Where do those two ranges come from, and which is in effect?
3) If I understand it correctly, my parents are buying a house valued at £362,500 (with no mortgage, so real money is at stake here), so SDLT should be £10875 - does ANY amount get paid to HMRC for SDLT? It seems for all the world that HMRC never receive a penny, and the solicitor is charging them a 1.5% fee (£5437.50) for doing it? Being a Company Director and jumping through hoops for HMRC at present makes me highly suspicious that they never follow up? Also, should they follow up would my parents have to pay the SDLT amount due (10k) PLUS a penalty of up to 100% of the SDLT?
4) I found a company advertising what looks like this service but with a different slant. Their 'how it works' page makes it seem that it's all to do with the amount of money paid? I'm not sure that posting links is allowed on here but if you google 'avoid stamp duty' you'll find them - they have an orange and green site.
5) As someone else has asked on here, would it make a difference if they did want to get a mortgage on the property within a few months of completion?

Just in case it makes a difference, my parents explained it to me like this (they really have no idea about all this stuff, and I think are being led by their financial advisor): The solicitor buys the house, transfers it somewhere else (they said abroad) and then sells it back to them for £1 but it takes 8 months or longer to go through.

Should I be warning them off of doing this?! And further info that anyone has would be greatly appreciated.