Property sales: Tax avoidance schemes fallout continues
The Solicitors Regulation Authority (SRA) has fined two more law firms for advising on conveyancing transactions in which clients were party to schemes to avoid the payment of almost £8m in stamp duty land tax (SDLT) – for which the firms received £160,000 between them on top of their regular fees.
Two-partner firms Hawkins Ryan, based in King’s Lynn, Norfolk, and Benson Mazure, based in central London, became the latest to sign regulatory settlement agreements with the SRA in which fines of £2,000 plus costs each were agreed.
In 2014 and 2015 several firms were fined the same amount for similar offences, including leading Surrey firm Mundays.
The transactions, which in the case of Hawkins Ryan took place between December 2009 and January 2013, and Benson Mazure between February 2011 and January 2013, involved schemes which aimed to reduce, or cancel altogether, the clients’ liability for stamp duty.
But HMRC made it clear in technical newsletters issued in 2007 and 2010 that it did not consider the schemes to be legitimate tax avoidance schemes. Also, anti-avoidance legislation came into force at the end of 2006 aimed at challenging property sale arrangements which were artificially structured to avoid paying the correct amount of tax.
Both firms admitted to failing to disclose material information to lender clients, acting in transactions in which there was a conflict, or significant risk of conflict, between the interests of two or more clients, and breaching accounts rules by failing to keep records properly written up.
In addition, Hawkins Ryan admitted to having failed to have in place a written referral agreement with a company that ran an SDLT avoidance scheme.
Benson Mazure implemented more than 70 transactions under each of two schemes: the unlimited company scheme and the Crystal scheme.
The first involved the buyers setting up a special purpose vehicle whose specific purpose was to buy the property from the seller, after which the company was wound up and its assets distributed. In theory this kept the transaction as a distribution of assets to company shareholders and therefore not one subject to SDLT.
The second scheme involved the buyer buying the property and then exchanging contracts with an offshore company immediately after completion for a nominal consideration – below SDLT levels – with the completion date set for 124 years. The object of the second contract was to permanently delay the effect of section 75A of the Finance Act 2003, and so avoid SDLT.
For its part, Hawkins Ryan implemented a total of almost 120 transactions involving the above two schemes, but also a number that involved other similar schemes.
For example, six transactions used the ‘husband and wife’ scheme, which comprised two contracts involving the sale by the seller to the wife (or husband) and a sub-sale (vice versa) in the form of a deed of gift. Both transactions completed simultaneously but the second contract was for less than 20% of the actual market value, keeping it within the SDLT nil rate or 1% rate band.
Both firms pleaded in mitigation that they were no longer involved in implementing SDLT schemes. Benson Mazure said neither of its schemes adversely affected lenders and that on occasion lenders were aware of the use of the schemes and had not raised concerns.
Hawkins Ryan said it had obtained counsel’s opinion on whether to report the use of the SDLT schemes to lenders and was told that while not necessary, it would be advisable. The firm acted on the advice. The firm also said that in half of cases in which it was instructed, it did not proceed with SDLT schemes either because lenders would not agree or because clients decided not to do so after hearing the firm’s advice on such schemes.
Tax avoided in the 146 conveyancing cases undertaken by Hawkins Ryan totalled at least £3.76m, and the firm was paid £500 plus VAT by the schemes for each case – £71,500 excluding VAT in total. As well as the £2,000 fine, the firm agreed to pay the SRA’s costs of £3,636.
Tax avoided in the 156 transactions conducted by Benson Mazure totalled at least £3.68m, and the firm was paid £600 including VAT for each – £92,400 altogether. It agreed to pay the £2,000 fine plus costs of £12,129.
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