Legal regulator warns against stamp duty mitigation advice

20 February 2012

The Solicitors Regulation Authority has warned practitioners that they may be risking disciplinary action if they help clients reduce their stamp duty land tax liabilities.

The SRA, along with the Solicitors Disciplinary Tribunal, is the UK legal profession’s principal watchdog. It publishes a handbook of ethical principles that solicitors are expected to follow. Last week it issued a notice advising solicitors that they may be in breach of some of these principles if they “promote or facilitate schemes whose purpose is to avoid or reduce stamp duty land tax”. The relevant principles demand “integrity, independence, the best interests of the client, and behaving in a way that maintains the trust the public places in you and the provision of legal services”.

HM Revenue & Customs has already taken action against SDLT mitigation schemes and has published opinions that many of them do not deliver the savings claimed by their promoters. HMRC can challenge the schemes up to four years after the tax became due, and charge the buyer a penalty of GBP3,000 per purchase.

Residential property schemes are the main target of the SRA’s warning. There has been much publicity in recent months about schemes in which title is held by a specially created company. The purchaser then acquires the property by buying shares in the company, thus avoiding the need to report the transaction for SDLT purposes. Other schemes break the purchase into a complex chain of artificial transactions, with the promoters sometimes claiming that the scheme is backed by a “robust counsel’s opinion”, that it is “approved by HMRC”, or that the promoter will reimburse clients if the scheme is later ruled invalid.

Because the amount of SDLT charged progresses in jumps as the transaction price increases, peaking at 5 per cent, these schemes are particularly favoured for transfers of high-value properties bought as investments. Some residential streets in central London are reputed to be owned entirely by offshore shell companies.

SRA executive director Richard Collins said the regulator would “look very closely at the conduct of any firm actively involved in these schemes, in view of the level of concern on the part of HMRC and the fundamental importance of integrity in the provision of legal advice.”

The authority is already taking action. In one recent case referred to the SDT, a solicitor was fined GBP15,000 and ordered to pay GBP30,000 costs. Further cases awaiting the SDT’s attention may result in even higher penalties, says the SRA.




Solicitors Regulation Authority




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