DOTAS: SDLT and residential property
Background
HMRC have been considering the application of the DOTAS regime to residential property where the property values are in excess of £1 million. They have consulted on this in the past and have now produced a condoc. They anticipate introducing regulations towards the end of 2009.
In simple terms, the consultation process suggested that they might move towards a "hallmarks" regime (for example, confidentiality/premium fee type criteria). This has not happened, and the condoc proposes that existing regime set out in the existing provisions in the Stamp Duty Land Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2005 will be applied to residential (and mixed) property (slightly amended).
The reason for this is that the regime for notification of the scheme number is now being extended to commercial property.
The second major change is that a taxpayer will be obliged to notify HMRC of the scheme, on a specific form (adapted from the client disclosure form).
The driver behind this obligation for users to disclose is HMRC's concern that boutique providers of residential schemes are promoting schemes which, in HMRC' view, fall foul of Section 75A FA2003. These schemes are still being disclosed to them, and HMRC are in some disarray as to how they should react.
Following this notification process, HMRC will challenge the use of these schemes by enquiring into the SDLT returns of those who have used them, and thus put consumer pressure on those promoters, thereby curtailing the promotion of these schemes.
The proposal is that a discloseable scheme (affecting either residential or commercial property) will still be obliged to be disclosed by the scheme promoter who will be issued with the scheme reference number (within 30 days of HMRC having received the disclosure).
However, unlike now, the scheme promoter will then be required to the pass the SRN onto the client within 30 days of becoming aware that the client has implemented the scheme.
If the client is not the end user of the scheme (ie. the person expecting to obtain the SDLT reduction) or not the only end user, the client will have to pass the SRN on to the end user if they know who they are.
The end user then reports the SRN (along with other information) to HMRC on the specially designed disclosure form, within 30 days of receipt of the SRN (or if later the effective date of the first land transaction that forms part of the arrangements).
The draft regulations provide a grandfathering rule that will exempt from disclosure any scheme of the same, or substantially the same, description of the scheme that was first made available for implementation by any person before the date the changes come into force.
Since these changes apply to both commercial and residential property (in reality it is only the notification issue that has changed regarding commercial property), HMRC believe that this grandfathering rule will cut down the scope of the existing commercial descriptions by removing the obligation to disclose schemes that are no longer new or initiative (you will recall that when the DOTAS regime was first applied to SDLT, HMRC were more concerned to find out about schemes that were "out there" than the individuals of those who were using them. The situation has now changed dramatically).
So, we are now in a regime where both residential and commercial property are subject to the DOTAS regulations, and the commercial regime has been brought within the more general DOTAS structure, ie. the end user must notify use of the scheme to HMRC, thus closing the information gap.
Responses to these proposals were required by 12 July 2009. We wait further output from HMRC following receipt of their responses.