Tax avoidance schemes are not always effective and can have serious unforeseen consequences. In a telling case on point, a man was required to pay the entirety of the Stamp Duty Land Tax (SDLT) due on a seven-figure property transaction, a bill that he would otherwise have shared equally with his then wife.
The then couple initially contemplated a straightforward purchase of the property for £1.075 million. Had that happened, the property would have been conveyed into their joint names, rendering them equally liable to SDLT. In the event, however, they elected to take a different course with a view to saving SDLT.
The scheme envisaged that the wife alone would agree to purchase the property for £1.075 million. She would then agree to sell it on to the husband for £10,000. The property’s freehold would then be transferred by the vendors directly to the husband alone. The husband subsequently declared to HM Revenue and Customs (HMRC) that the chargeable consideration for the purchase was £10,000 and that no SDLT was due.
HMRC disputed that proposition and the husband conceded that the scheme had not worked as planned and was ineffective. He was required to pay SDLT on a purchase price of £1,085,000. That was £10,000 more than if the scheme had not been carried out. Following the couple’s divorce, the First-tier Tribunal (FTT) agreed with HMRC that the whole SDLT liability fell on the husband alone.
Challenging that outcome, he argued that, following the property’s transfer, he held it on implied trust for himself and his wife. As they were joint beneficial owners of the property, he said that he should only be liable for one half of the SDLT bill. The Upper Tribunal (UT), however, found no fault in the FTT’s conclusions on the evidence and dismissed his appeal.
The UT noted that, in essence, the failed scheme required the husband to become the property’s sole beneficial owner on completion of the purchase. That was what the couple intended and some care was taken to achieve that result. He was to be regarded as the transferee under the conveyance, which vested the property, both legally and beneficially, in him alone.