The SRA has issued a warning notice to solicitors who are or who may be considering getting involved with stamp duty land tax avoidance schemes.
The warning which does not form part of the Code of Conduct may be taken into regard when the SRA exercises its regulatory functions.
The warning reminds solicitors of the Code of Conduct and draws attention to the principles of integrity, independence, best interests of the client ,and acting in a way that maintains trust the public place in you and the provision of legal services.
The warning says conveyancers should ”
– Be wary of claims by promoters of SDLT schemes that the scheme is backed by a "robust counsel’s opinion". Based on what we have seen, we warn that you must check that the opinion
o is genuine,
o has not been tampered with,
o is up to date, and
o specifically covers the scheme which is being promoted.
– Bear in mind that reliance on counsel’s opinion is not necessarily a defence to allegations of breaches of the Principles, and such a position is substantially weaker if the opinion has not been obtained by you for the particular client and the transaction in which you are acting;
– Be wary of claims that the SDLT scheme is approved by HMRC. Be aware that disclosure of the scheme to HMRC, and the issue of a scheme reference number by HMRC, is not confirmation the scheme is backed by HMRC;
– Be aware that HMRC can currently challenge SDLT schemes up to four years after the effective date of the transaction and this can be extended if there has been a careless or deliberate error in the submission of the SDLT return;
– Consider carrying out due diligence on the promoter of the SDLT scheme. If the promoter claims they will repay the fee charged for implementing the scheme, robustly check how realistic this is, bearing in mind that HMRC has four years to challenge the scheme. If the promoter is unable to repay the fee, the buyer may look to you to reimburse them;
– If the SDLT scheme is based on a supposed "no win no fee" basis said to be backed by insurance, robustly check that the policy is suitable and relevant to the purchasers circumstances”
The warning goes on to explain that HMRC has indicated that it will actively challenge these schemes where they have been artificially structured.
The SRA warns that the Principles of the Code of Conduct are relevant because;
“Whilst buyers of property are free to use honest and proper tax planning to mitigate their tax liability, there are a number of risks and misconceptions surrounding SDLT schemes. If you are asked to promote or implement a SDLT scheme, buyers will place reliance on you to act with integrity, independently, and to consider whether an SDLT scheme is in their interests.
Even if a buyer is aware of the risks and would like to use an SDLT scheme, you should take care to act in a way that maintains the trust the public places in you and the provision of legal services. This is particularly important with SDLT schemes where significant fees can be made from the implementation of a scheme but which may, in view of the warnings by HMRC, result in financial loss to buyers and HMRC”.
Richard Collins, SRA Executive Director, said: "In view of the level of concern on the part of HMRC and the fundamental importance of integrity in the provision of legal advice, we will look very closely at the conduct of any firm actively involved in these schemes. Buyers of property are free to use honest and proper tax planning to mitigate their tax liability, but there are a number of risks and misconceptions surrounding SDLT schemes.
"Given this, we would urge any solicitor involved or considering becoming involved in the implementation or promotion of a scheme to make sure they comply with the Code of Conduct. This includes acting with integrity, independence, in the best interests of the client, and behaving in a way that maintains the trust the public places in them and the provision of legal services.
"Involvement in SDLT schemes could put a solicitor at risk of failing to uphold any if not all of these Principles."
David Gauke MP, The Exchequer Secretary, added: "I welcome the work that the SRA is undertaking to ensure solicitors are not abusing their positions of trust, and their obligations to all their clients when advising on and conveyancing property. HMRC is investigating schemes notified to it and also tracking down other users of schemes to challenge apparent deficiencies in returns submitted.
“HMRC will seek payment of the full amount of SDLT in all such appropriate cases.”
While the SRA’s particular current concern is schemes involving residential properties, those considering schemes involving any type of property might also want to look at the issue carefully. Those wanting further advice on the application of the Principles in relation to stamp duty land tax avoidance schemes is available via the SRA’s Ethics helpline on 0870 606 2577, Monday to Friday, 09.00 to 17.00.
In view of the level of concern on the part of HMRC and the fundamental importance of integrity in the provision of legal advice, we are likely to look very closely at the conduct of any firm that is actively involved in these schemes.
We are taking action in a number of cases. In a recent case that came before the Solicitors Disciplinary Tribunal (SDT), a solicitor was fined £15,000 and ordered to pay £30,000 costs. There was also a finding that there had been a lack of integrity. There are further cases due before the SDT which may result in more substantial penalties.
We are aware that a number of firms are taking corrective action such as ceasing to promote SDLT schemes, informing buyers that independent legal advice may be needed as well as ensuring lenders are aware of all the details of the SDLT scheme.