SDLT planning schemes - a note of caution

There are a good many companies out there selling SDLT saving schemes at the moment.

Some of these companies are excellent and some not so.

I have had recent discussions with HMRC who work very well with the providers that genuinely manage a "good scheme" but they have told me some chilling stories about the clients who are now having to settle the SDLT bill rather than appeal because the scheme has been poorly managed and advised upon.

HMRC are very carefully analysing these schemes and even if the main legal arguments prove to be successful they will still pursue individuals who may not have had their scheme correctly implemented. They are also reporting implementing solicitors to the SRA who may be in breach of some of the conduct rules.

If you have been offered an SDLT mitigation scheme, how then do you tell the good from the bad?

• Is your adviser putting you fully in the picture about the risks? If they are making it sound fabulous and virtually risk free then avoid them. If you sense that they are almost putting you off doing it with stories of enquiries and investigations and how they will be managed then they are probably one of the good ones.
• Look at  the number of products they advise on generally -  including all types of taxes. Good advisers tend to have a handle on a number of tax planning areas and will be aware of property structuring generally.
• Ask about the adviser's professional background. If they have no appropriate qualifications and advise on a single scheme backed on one Counsel's opinion proceed carefully. Some of these opinions have not been directly obtained, and have, I have been very reliably informed, been doctored to remove some of Counsel's caveats to the advice so that the scheme is easier to sell and implement on the smaller transactions!

I can suggest a number of good advisers if you want to ask. I am also happy to advise independently on merit and likely risks if you think that might help your decision. Some client's feel happier enter into planning schemes if they know exactly what they are letting themselves in for.

I am not here to say whether you should or shouldn't do schemes and in fact as some of them are based on technically meritous legal arguments they are certainly worth a shot.

The following story may however, highlight the danger of not using an adviser who is technically competent in the field of SDLT.

A non domiciled investor has recently completed the purchase of 9 flats from a developer for £3.8 million using an aggressive SDLT sub-sale planning scheme.

They were informed by the Estate Agent, Solicitor and the Scheme Adviser that the SDLT would be chargeable at the rate of 5% but, that they could get the rate down to 2% (plus VAT on their fee).

The client signed up to pay £91,200 ( including the VAT) for the planning advice thinking that they were saving about £100,000.

Sadly, neither the Estate Agent, Solicitor or Scheme Adviser informed the client that due to the bulk purchase relief for residential purchases their SDLT liability was actually only 3% not 5% (£114,000).

So in actual fact the client is only saving £22,800 and that is if it works!

Worse still, the client who is neither domiciled or resident in the UK  has proceeded on the basis of  acquiring and holding the property personally. No-one has advised correctly on CGT and IHT planning and these tax risks could amount to far more than the SDLT which may be saved.

So, this is a note of caution. Yes I think it is worthwhile carrying out a scheme in certain cases but your key to making it worthwhile and having the best chance of success depends on your adviser and choosing a good one is therefore crucial.