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HMRC update SDLT combined steps guidance

HMRC update SDLT combined steps guidance

HMRC have updated their guidance on section 75A anti-avoidance legislation.

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Section 75A FA2003 in effect short-cuts or re-casts transactions involving land in England or Northern Ireland that have multiple component steps. If the revised transaction generates more SDLT than the actual transactions, that higher amount of SDLT is payable. Previously the section has been understood to be an anti-avoidance provision, only to be applied where taxpayers have avoided tax (deliberately or not). In the light of the decisions in Project Blue and in particular Hannover Leasing v HMRC in which the Tribunal appeared to agree with HMRC’s assertion their guidance in this area was wrong, HMRC have updated this guidance to remove statements that section 75A anti-avoidance legislation will not be applied where transactions are taxed appropriately, absent section 75A. In other words, it appears HMRC will no longer accept arguments that combined steps transactions that result in a reduced liability to SDLT are spared section 75A merely because the reduced liability is in line with the overall scheme of the legislation and hence is not avoidance.

Transactions have multiple steps for these purposes where there are ‘scheme transactions’, that is, transactions involved in connection with the acquisition of the property. The decision in Hannover was that the taxpayer was incorrect to assert that ‘scheme transactions’ must be read purposively to mean transactions that do down the evident aims of the SDLT charging provisions, so the guidance reflects this by asserting that if the outcome of any sequence of transactions (presumably the outcome being the acquisition of the property) depends on one of those transactions, that transaction is a scheme transaction.

The guidance does not address many of the uncertainties advisers face in this area (and given the difficulty with the legislation and the case law this is understandable). But the guidance does give a clear indication that HMRC proposes to apply what in reality must have been intended as anti-avoidance legislation, without regard to whether the transactions in question defeat the aims of the rest of the SDLT legislation or not.

However, it remains to be seen if in practice HMRC do this or whether they will exercise a discretion, given there are many examples of transactions where the application of section 75A would give unintended results. So taxpayers and their advisers remain uncertain of the SDLT costs of many transactions, even relatively straightforward ones.

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