Becoming embroiled in a dispute with HMRC is obviously something businesses want to avoid at all costs.
An organisation with the resources and expertise of HMRC is a formidable opponent and many businesses are understandably keen to avoid confrontations with it.
If you are considering mitigating stamp duty through complex tax planning schemes, the truth is that HMRC can and will challenge the scheme if it deems it an example of aggressive tax avoidance.
Any reputable stamp duty mitigation company will be forthcoming about this point. All mitigation schemes must be approved by HMRC and if it comes to the conclusion that you are trying to avoid paying your fair share, there is a good chance that the authorities will try and recoup the outstanding tax.
That is not to say, however, that a challenge from HMRC will be successful. Stamp duty mitigation, after all, involves interpreting the law and exploiting loopholes that allow businesses to reduce or avoid stamp duty altogether. It is not tax evasion and is not illegal in any way.
Being subject of an HMRC investigation is a major sticking point for some businesses when it comes to mitigating stamp duty, however, the first case where HMRC has challenged a mitigation scheme saw it suffer a defeat in what has become a landmark ruling.
The case involved DV3 RS Limited Partnership, which saved £2.6 million in stamp duty after buying the Dickins and Jones building on London’s Regent Street.
This was achieved by using a mitigation scheme that involved sub-sale relief.
DV3 RS Limited Partnership bought the property in question and then sold it to a limited partnership that was created under laws from the British Virgin Islands. DV3 was the main partner in this BVI partnership, with other minor partners involved as well.
Both agreements were completed on the same day in 2019 and two separate conveyances were executed.
Under the arrangement, DV3 RS did not pay stamp duty on the first contract due to sub-sale relief and the partnership paid not stamp duty either under stamp duty land tax partnership rules.
HMRC viewed this transaction as an aggressive form of avoidance and took its case to a tribunal where the judges decided that the scheme was entirely legal and that no stamp duty was payable.
The authorities have appealed the decision and it remains to be seen whether their case will be successful the second time round.
What the DV3 case shows you is that it is no way guaranteed that an HMRC challenge to your mitigation scheme will be successful.
The scheme used by DV3 is unfortunately no longer available due to legislative changes introduced in 2019, however, there are other schemes that could help you avoid or reduce your stamp duty bill significantly.
It is imperative that you select a reputable mitigation company that has its schemes vetted by tax and legal experts.
Also, you need to ask each company you speak to whether any of its schemes have been investigated and if so, how successful they have been in defending them.
While there is always the possibility of HMRC investigating your scheme, the DV3 case is evidence that the taxpayer can win if such a challenge does occur, so it is something that may be worth you looking into.
