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Attack on SDLT avoidance greeted cautiously

21 March 2012
Categories: News , Budget 2012 , Admin , Capital Gains , Land & property
Experts warn of 'woolly' figures and 'draconian' legislation

The now-familiar hard line taken by the government on tax dodging was continued by George Osborne in this afternoon’s Budget, as he announced the anticipated closure of a stamp duty avoidance scheme and signalled the introduction of a general anti-abuse rule (GAAR).

‘The anti-avoidance measures in this year’s Finance Bill will increase tax revenue over the next five years by around £1 billion and protect a further £10 billion that could have been lost,’ the chancellor told Parliament before pledging to consult on the GAAR recently proposed by Graham Aaronson QC, and to legislate on the measure in Finance Bill 2013.

The news was given a qualified welcome by the Chartered Institution of Taxation, which stressed the need for a ‘balanced package’ and ‘clear guidelines’.

‘We think the government is right to press ahead with a narrowly targeted GAAR aimed at truly artificial schemes,’ said John Whiting, the professional body’s tax policy director.

‘Any GAAR needs to be carefully designed to balance the needs of business and individuals for certainty against the Exchequer’s targeting of what the chancellor described as “morally repugnant” avoidance.’

Mr Osborne also confirmed today the widely anticipated end to the use of companies to buy expensive residential property: a method of stamp duty land tax (SDLT) avoidance that ‘rouses the anger of many of our citizens’, he said.

With immediate effect, the SDLT charge applied to residential properties over £2 million bought into a corporate envelope will be 15%, in move accompanied by the levying of capital gains tax on residential property held in overseas envelopes, and legislation to close down the sub-sales relief rules as a route of avoidance.

The punitive charge of 15% is a clear sign that the government is ‘throwing the book at avoidance’, said Paul Emery, tax director at PricewaterhouseCoopers.

‘Combined with a threat of retrospective legislation for avoidance, it is a strong signal that residential property sales cannot escape tax.’

Other tax experts expressed reservations about Mr Osborne’s announcements to combat avoidance.

‘There remains a certain woolliness around the figures that such measures may raise, and the chancellor will be under strong pressure -  both in the UK and from such barometers at the credit rating agencies – to show he will be able to balance the books,’ remarked Francesca Lagerberg, head of tax at Grant Thornton.

Ian Miles warned of a threat to lawful tax strategising. Mr Miles, a tax partner with James Cowper accountants, said, ‘The boundary between evasion and avoidance has traditionally been the prison wall. We are worried about the blurring of these definitions, with a possible attack on legitimate tax-planning.

‘It would be helpful to have guidance from the government on the spirit of the legislation, but that is unlikely.’

Ernst and Young tax partner Patrick Stevens claimed the long-awaited counteraction to SDLT abuse would be ‘draconian’ and have ‘difficult side effects’ for people who hold property through companies for reasons unconnected to tax; for instance, foreigners hoping to sidestep their country’s forced heirship rules.

A threshold of £5 million for the increased SDLT charge was proposed by BDO senior tax partner Stephen Herring, meaning it would affect only properties ‘owned by oligarchs, top investment bankers, and the very wealthy’.

The capital gains tax change alongside the SDLT plans will need to be ‘watched carefully’, claimed Liz Peace, chief executive of the British Property Federation, ‘because it could operate to reduce the financial attractiveness of large-scale investment in residential property’.


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