A law firm in Surrey has become the latest to be sanctioned for its involvement in stamp duty land tax (SDLT) avoidance schemes, even though it stopped working on them within eight hours of the Solicitors Regulation Authority (SRA) issuing a warning about their dubious nature.
Woking firm Buglear Bate & Co accepted a £1,500 fine in a regulatory settlement agreement with the SRA that was published yesterday, meaning no further action will be taken.
The firm acted in 30 conveyancing transactions in the year to April 2012 where clients signed up to SDLT schemes that resulted in the non-payment of £863,833 to HM Revenue & Customs (HMRC).
Inventive Tax Strategies Ltd promoted 22 of the schemes and Strategic Ideas Ltd the other eight.
For each, the firm facilitated an “unlimited company scheme”, in which an unlimited company is incorporated with the purchaser client subscribing for shares, with the company’s specific purpose being to purchase the property.
The company contracts with the seller to purchase the property and the funds generated by the share subscription are used by the company to facilitate the purchase. A repayment of the capital is made by way of a transfer of the property to the shareholders of the company (the buyer client) which is done simultaneously at the time of completion. The company is subsequently wound up once registration has taken place.
Of the 30 transactions, 21 involved mortgage advances, with the firm acting for both buyer and lender clients. The firm had an obligation to disclose to its lender clients all information material to the buyer clients’ matters, but did not mention the SDLT schemes.
In addition to its conveyancing charges, Buglear Bate billed a further £7,715 for facilitating the SDLT schemes. Inventive received £174,583; it is not known how much Strategic made as it billed clients directly.
HMRC issued technical newsletters in August 2007 and June 2010 which showed it did not consider SDLT avoidance schemes to be legitimate. The SRA published a specific warning notice to solicitors in February 2012
In the agreement, Buglear Bate accepted that, by not disclosing the schemes to its lender clients, it failed to act in those clients’ best interests.
Further, it acted where there was a conflict or significant risk of conflict between the buyer and lender clients.
Finally, it transferred mortgage monies from one client ledger to another without authority – the firm did not notify the lender clients that a company would utilise the mortgage advance to purchase the property before the property was subsequently transferred to the buyer clients.
In mitigation, Buglear Bate said it began to operate the schemes in 2011 “when they became widespread within the industry, feeling constrained to advise clients of the availability of such schemes”.
Further, within eight “working hours” of the SRA publishing its warning notice, the firm ceased involvement with all cases involving a scheme, save for those where the client was already contractually committed to proceed.
Buyer clients who had not yet exchanged contracts were given the choice of either proceeding with their purchases without the use of the scheme or, if they wished to use the scheme, the firm agreed that they would waive their full costs and transfer the papers to an alternative firm of the clients’ choice.
The firm said its analysis at the time was that the company was the same legal person as the buyer and that there were no material issues to bring to the lender’s attention. “The firm accepts in hindsight that this was a mistaken analysis.”