A tribunal yesterday ruled against a company called Vardy Group, which used a regulation, originally designed to prevent double taxation, to avoid £290,000 of stamp duty on a business park in Stockton-on-Tees in the UK which it purchased in 2006 for £7.25m.
Instead of paying the stamp duty, the company structured the purchase through a newly formed unlimited company, which then immediately distributed the property as a dividend to the shareholder company.
Vardy argued that stamp duty rules “looked through” the unlimited company’s purchase; and since the final purchaser had paid nothing for the property it was not liable for any SDLT.
However, the tribunal found that the unlimited company had not properly carried out company law requirements for declaring a dividend, and that in reality the ultimate owner of the property had indirectly provided the purchase price. For either reason, the avoidance scheme failed and the SDLT was due, said HM Revenue & Customs.
HMRC’s director general of business tax, Jim Harra, said: “This victory at the First Tier Tribunal sends a clear message to tax avoiders that we will challenge avoidance relentlessly. The decision is good news for the vast majority of taxpayers who pay, rather than try to dodge, their taxes. It shows that the courts will see through arrangements which are put in place just to avoid tax.
“People who are tempted by tax advisers to enter into avoidance schemes should think twice and not be driven by greed into signing up for schemes that are just too good to be true.”
The scheme used by the Vardy Group is widely marketed by tax advisers to avoid paying SDLT and HMRC said that its victory will prevent the scheme being used, as it has now proven not to work, and will save the UK exchequer about £170m in lost revenue.
