The following article is republished with the consent of Shoosmiths
Since April 2009, HMRC has published a series called Spotlights, highlighting areas in which HMRC perceives tax avoidance is taking place.
Whilst these are only HMRC’s views and do not have the force of law, they give a good indication of which areas are likely to attract increased HMRC attention.
On 7 June 2010, HMRC added a new ‘spotlight’ which flagged that ‘commercial and residential property sales are being carried out in ways intended to avoid’ SDLT, and ‘in some cases an intermediate sale … is introduced into the arrangements with the sole intention of removing the true purchase price from tax’ by seeking to exploit sub-sale relief.
HMRC points out that sub-sale relief ‘is intended to ensure that, where a property transaction happens in stages, SDLT is paid once on the full amount paid for the property by the person who ultimately acquires it and no double charge arises’.
HMRC have indicated that the basis of their arguments will be that either the conditions for sub-sale relief are not met or the scheme falls within current SDLT anti-avoidance legislation.
There are a number of such schemes circulating at the moment, some taking advantage of SDLT provisions which seek to put alternative financing transactions on the same footing as ‘standard’ SDLT transactions.
Genuine sub-sale transactions that meet all the criteria for sub-sale relief and do not have a tax avoidance motive are not the sort of transactions HMRC is indicating it sees as ineffective.
However, any person currently using or considering using a scheme which artificially structures the transaction to take advantage of sub-sale relief and reduce the amount of SDLT payable should be prepared for potentially strong resistance from HMRC, which may pursue a claim through the courts.