Revised SDLT disclosure rules could apply to schemes which have no avoidance motive, expert warns

The draft regulations remove the financial thresholds for disclosure, update the list of excluded arrangements and require promoters to notify HMRC of certain transactions involving a 'transfer of rights', such as a sub-sale, even if they have previously notified HMRC of similar arrangements.

HMRC is only inviting comments on the "technical accuracy", rather than the substance, of the new regulations. The consultation closes on 20th August.

A 'transfer of rights' is a sub-sale, assignment or other transaction under which a contract for a land transaction is not completed. Instead, a further transaction is entered into under which the property transfers to a third party directly from the original seller or transferor. For SDLT purposes the original transaction is ignored, and there is instead deemed to be a contract for a land transaction between the original seller and the third party.

Tax law expert John Christian of Pinsent Masons, the law firm behind Out-Law.com, warned that the updated rules could catch some legitimate structures.

"The new rules focus on extending disclosure in relation to structures involving transfers of rights and sub-sales," he said. "As well as catching tax planning schemes, these updated rules could catch some structures involving sub-sales which have no avoidance motive. Development structures often use these provisions for commercial reasons and taxpayers will need to become aware where the extended disclosure rules may apply."

In a policy statement last year HMRC said that the changes were part of its ongoing anti-avoidance strategy and a response to developments in the marketing and use of SDLT avoidance schemes. There had, it said, been an "increase in the use of old avoidance techniques", and schemes were also being marketed for use in relatively low-value transactions.

The DOTAS regulations require promoters of certain schemes to avoid SDLT on property transactions to disclose those schemes to HMRC. The rules previously only applied to schemes involving non-residential property with an aggregate market value of at least £5 million or residential property with an aggregate market value of at least £1 million.

Under the 'grandfathering' provisions, promoters did not have to disclose new schemes that were "substantially" the same as ones they had disclosed before 1 April 2012.

Tax law expert Matthew Rowbotham of Pinsent Masons said that removing the 'grandfathering' rules was a "significant move" which could "yield a lot of useful information" for the department.

"With SDLT avoidance being such a focus of the last Budget there are few surprises in this announcement," he added. "There are a number of schemes in the market which rely on the interpretation of these 'transfer of rights' rules."

The Treasury is currently consulting on additional measures aimed at ensuring people who purchase high value residential properties in the name of a company or partnership pay their "fair share" of SDLT, a move which was announced as part of the 2012 Budget. It is proposing the introduction of an annual charge to discourage the use of 'enveloping', where a corporate package is used to 'wrap up' a residential property as a way of avoiding an SDLT charge. The Budget also introduced an immediate increase on SDLT charged on acquisitions of residential properties costing more than £2m, to 7%.

HMRC is also consulting on improvements to the existing transfer of rights regime, to ensure that it does not apply to transactions involving tax avoidance. However, John Christian warned that these changes could also have an adverse impact on legitimate commercial development structures.

"The concern is that these changes will go too far and impose charges on commercial development structures, so it is important that the property industry makes its voice heard and contributes to the consultation," he said.