- No list of points to bear in mind can be exhaustive as every case is different. Should you have concerns, take advice. SDLT mitigation is regarded as aggressive tax planning. It is an area which receives aggressive attention from HMRC and from the SRA.
- However, in the recent case of SRA v. Ezaz, Dale and the “Third Respondent”, I enjoyed considerable success on behalf of the Third Respondent (whose anonymity was preserved as we were successful in having all charges dismissed against him) following a hearing lasting many weeks before the Solicitors Disciplinary Tribunal.
- The SRA could not have made it clearer. It regards a solicitor’s conduct acting in transactions where Stamp Duty Land Tax (SDLT) would otherwise be due as presumptively wrong. This is so notwithstanding that the scheme adopted by the client (whether promoted by the solicitor’s firm or a third party) may not have been successfully challenged by HMRC in the courts.
- Although there have been a couple of decisions of the SDT/SRA in relation to solicitors acting on transactions where SDLT schemes have been employed (see SRA v. Buckeridge and Heath, 10476-2010 and more recently SRA v. Dlayo 1855-2011), no real challenge of the SRA approach to SDLT mitigation had been mounted until SRA v. Ezaz, Dale and the Third Respondent. In this case, in which I represented the Third Respondent, we were successful on every allegation relating to the implementation of SDLT schemes.
- As things stand, it does appear as though the SRA has adopted a “moralistic” stance that is at odds with prevailing legal and academic thought (and which has existed over centuries) that all tax payers have the right to organise their affairs according to law so as to minimise their tax liabilities. In the disciplinary arena, where the SRA has failed to make the grade alleging breach of the core principles for having undertaken transactions which permit the reduction of SDLT, they have sought to spike the solicitor on the trap of alleged breaches of the duty to disclose to the lender that SDLT mitigation has been employed.
- To the extent that the SRA has sharpened its teeth, then solicitors would be well-advised to take into account the SRA warning notice of the 16th February 2012. Faced with clients who desire to minimise by lawful means their exposure to SDLT what then is the solicitor to do? What of the firm that desires, either itself or by association with a promoter of SDLT mitigation schemes, to act on the conveyance for a client who wishes to take advantage of such a strategy?
- At the very least the solicitor should bear in mind that he must act at all times in compliance with the Code of Conduct and in particular the core principles. Those which would appear to apply in these circumstances would include the duties to:
- uphold the rule of law and the proper administration of justice
- act with integrity
- not to permit your integrity to be compromised
- act in the best interests of your clients
- provide a proper standard of service to your clients
- behave in a way that maintains the trust the public places in you and in the provision of legal services
- Applying these duties together with the February warning notice, solicitors involved in transactions which would result in a reduced amount of SDLT being paid to HMRC should consider at the very least, taking the following action:
- ensure that the scheme is not one which HMRC regard as being discredited and be cautious of any claim that HMRC has approved any particular scheme;
- check any counsel’s opinion upon which a SDLT mitigation strategy is based. In particular firms are advised to ensure that the opinion is genuine, has not been tampered with, is current and specifically covers the scheme which is being promoted;
- consider obtaining counsel’s opinion in relation to the particular client and the particular transaction in which the firm is acting;
- ensure that the appropriate disclosure is made to HMRC to ensure that the time for challenge to the scheme is limited;
- perform due diligence on any promoter. Consider whether the promoter is able to stand by any promise to refund fees if the scheme is successfully challenged by HMRC. Consider also that HMRC may, as a consequence of failure to make full disclosure, be able to challenge the scheme up to 4 years after the date of the transaction. Will the promoter still be good for the money then? If such a promise is backed up by the boast of an insurance policy, perform due diligence on that policy;
- SDLT mitigation is considered highly aggressive. Any disclosure is likely to result in HMRC enquiring about the transaction and the purchaser’s affairs. This may lead to a souring of the relationship between the client and HMRC and may lead to additional scrutiny of the client’s finances;
- advise the client that, should the scheme be disallowed then provision should be made for the payment of the full amount of the stamp duty together with interest. If HMRC consider that insufficient disclosure of the scheme was made to them, the payment could be increased to include penalties;
- ensure that you disclose and account to the client any benefit received by the firm as a consequence of the implementation of a scheme, together with any referral arrangement connected with the scheme; and
- finally, and importantly (as this is a matter upon which the SRA have focused in such cases as have found their way to the Tribunal), if you are acting for the lender also consider with great care whether the scheme might prejudice the interests of the lender. Alternatively, and preferably, do not act for the lender when a scheme is being adopted.
- No list of points to bear in mind can be exhaustive as every case is different. Should you have concerns, take advice. SDLT mitigation is regarded as aggressive tax planning. It is an area which receives aggressive attention from HMRC and from the SRA.
- However, with proper advice and adequate representation SRA allegations can be properly and fully defended.
