The DOTAS rules are to be extended to ensure more information is available to HMRC regarding the extent of the use of SDLT avoidance arrangements. Whilst HMRC are known to have a large number of cases awaiting litigation, these changes will undoubtedly lead to increasing scrutiny of transactions: including many that have already been completed.
Baker Tilly analysis
The removal of the DOTAS ‘grandfathering’ rules for certain SDLT avoidance schemes will mean that schemes that had previously been disclosed before April 2010, will now need to be disclosed one additional time by promoters. New users of those schemes will therefore be identified to HMRC. The removal of the property value thresholds should significantly increase the disclosures to be made by those mass marketing residential property schemes.
Surprisingly, in view of the widespread publicity being provided to many residential property schemes, the operative date for the regulation-making power will be the date of Royal Assent to the Finance Bill (expected to be July 2012).
In detail
Two changes are being made to the Disclosure of Tax Avoidance Schemes (DOTAS) regime for SDLT to ensure that HMRC are able to identify the many property transactions that are believed to be part of SDLT avoidance arrangements.
The operative date for the regulation-making power that is to be included in the Finance Bill 2012 will be the date of Royal Assent (expected to be July 2012). Even then, this measure will only have effect once new regulations come into force at a later date.
The first change relates to SDLT avoidance schemes that were first disclosed before April 2010 but were left out of the Scheme Registration Number (SRN) regime by 'grandfathering' rules: these will now be notifiable. The SRN has to be passed on to any users of the scheme who then in turn have to provide HMRC with the SRN, allowing HMRC to identify the users of the scheme. It should also be noted that since 1 January 2011, promoters have to provide HMRC with periodic information about clients to whom they become required to issue a SRN.
The second change extends the scope of the rules by removing the property valuation thresholds (£1m for residential and £5m for commercial properties) for disclosure.
Both of these changes are in response to developments in the marketing and use of SDLT avoidance schemes. In particular, it has been noted that there has been an increase in the use of old avoidance techniques and schemes. These are now being marketed for use in relatively low-value transactions.