Proposed changes to the DOTAS regime for SDLT
Draft regulations were published today for consultation that would change the Disclosure of Tax Avoidance Scheme (DOTAS) regime as it affects SDLT -
- to extend the regime to residential property with a value of at least £1 million, and
- introduce arrangements for HMRC to identify users of disclosed SDLT schemes for both residential and commercial property.
The regulations are intended to take effect towards the end of this year. This continues a process of consultation initiated in 2007.
Under the draft regulations, DOTAS would apply to schemes that concern either:
- Non-residential property with an aggregate value of at least £5 million; or
- Residential property with an aggregate value of at least £1 million.
A 'grandfathering' rule would exempt from disclosure any scheme of the same, or substantially the same, description as a scheme that was first made available for implementation by any person before the changes come into force. This is to ensure that only new and innovative schemes are caught.
The draft regulations would extend the Scheme Reference Number (SRN) system to SDLT. The SRN system was designed to identify users of disclosed schemes and applies to the DOTAS regime for other taxes. Promoters of affected schemes must use a particular HMRC form to notify a SRN to clients, providing the client with information about how and when to report a SRN to HMRC. An alternative method of notifying SRNs using the SDLT land transaction return has been ruled out as unworkable.
Responses to the consultation document are requested by 15 July 2009.
We continue to be of the view that the proposal to extend DOTAS to residential property is misguided in that it seeks to tackle a perceived avoidance problem - i.e. the use of special purpose vehicles to avoid SDLT on high-value residential properties - which does not exist. The proposal was apparently prompted by anecdotal evidence (especially an article in a London newspaper), and has been roundly refuted by the property industry. The proposal to extend the concept of SRNs to SDLT is a departure from the initial aim of the DOTAS regime as it affects SDLT. It makes the DOTAS regime consistent with that for other taxes.
