Tribunal closes down stamp duty avoidance scheme

THE TAXMAN has claimed a significant victory in a tribunal in its continued fight against tax avoidance schemes.

Durham-based property company Vardy Property took advantage of a regulation initially devised to prevent double taxation. It wanted to avoid paying £290,000 of stamp duty on the £7.25m purchase of a business park in Stockton-on-Tees in 2006.

The sub-sale relief was intended to exempt legitimate intermediaries, for example house-builders, from paying stamp duty twice – first after buying the land, and then after selling the completed house.

The park bought by Vardy was first acquired by an intermediate company, which then transferred to Vardy as a dividend. Vardy claimed the first transaction was tax-exempt on account of sub-sale relief. The second transaction also incurred no tax, it said, as there was "no chargeable consideration".

The tribunal found Vardy's implementation of the scheme was contrived and the dividend unlawful. In particular, it said Vardy had been "forthright in saying they had structured a property acquisition in a very particular way to avoid what would otherwise have been a 4% charge".

The ruling is significant for the taxman, which sees it as a breakthrough in its fight against avoidance. While it does not entirely close the loophole, it "sends a clear message" over such arrangements, particularly in the residential property market, where schemes such as these are common, Jim Harra (pictured) director-general of business tax for HMRC said in a statement.