Legal opinion on Husband and Wife (“H&W”) Dual Completion (“DC”) and Unlimited Company (“UCS”) SDLT schemes

Inventive Tax Strategies Limited (in administration)
Professional Advice Bureau Limited (in administration)
Sterling Tax Strategies Limited (in liquidation)
Bell Strategies Limited (in liquidation)
(together “the Companies”)

Legal opinion on Husband and Wife (“H&W”) Dual Completion (“DC”) and Unlimited Company (“UCS”) SDLT schemes

The administrators / liquidators have sought the opinion of legal Counsel and our solicitors as to whether the SDLT mitigation Schemes known as H&W, DC and UCS (“the Schemes”) sold by the Companies would be successful on appeal at a Tax Tribunal

For the avoidance of doubt, Counsel and Solicitors' advice is provided for the benefit of Smith & Williamson LLP only, as the administrators / liquidators of the Companies.  The Companies’ clients are not entitled to rely on it as being appropriate to their particular circumstances and any client of the Companies who require advice specific to their circumstances should obtain their own tax and/or legal advice.

1.      Counsel's Opinion

1.1.     Counsel has advised that the H&W, DC and UCS Schemes have no prospect of success in the courts.  Since these particular schemes have not been tested in the courts there is no absolute certainty that they would fail, but it is the strong advice of Counsel that they would fail if so tested.  HMRC have also asserted that these Schemes do not, and never had, any prospect of success and that HMRC intend to challenge all of the Companies’ Schemes in the Tax Tribunal where clients have not reached a settlement with HMRC to pay the tax and interest due within an agreed timeframe.

1.2.     Our solicitors support Counsel's conclusion that H&W, DC and UCS have no prospects of success.  They are of the view that it is abundantly clear from the case law on SDLT planning that the courts will go to considerable lengths to reach the conclusion that these schemes fail.  An example of this approach can be found in the case of Vardy where, although the Tribunal reasoned that superficially the scheme appeared to work, ultimately the scheme was found to have failed on the basis that the scheme was not correctly implemented in accordance with company law.  Even if Counsel had been optimistic about the technical merits of H&W, DC and UCS (which he is not) our solicitors have doubts that all schemes were implemented effectively based on the sample documentation for UCS which they have reviewed and in instances in H&W where the scheme was implemented by way of a joint mortgage.  Counsel is of the view that in any case these three Schemes would fail and our solicitors support this conclusion.

2.      Update on HMRC's position

2.1.     HMRC have advised that they are planning a "mass litigation exercise" in respect of these Schemes.  HMRC have also advised that they are in the final stages of obtaining a statutory notice which, if approved by the Tax Tribunal, will required the administrators of the Companies to provide HMRC with the details of all of those who used these schemes (except where Scheme users are already subject to an enquiry or assessment by HMRC in which case HMRC will already have these scheme users' details).

2.2.     It is expected that following announcements made in the 2014 Budget, from later on in 2014 HMRC will be able to enforce payment of SDLT even before any appeal is final as taxpayers are now required to account for any tax HMRC claim to be due before appealing this matter to the Tax Tribunal.

3.      Credit Notes

3.1.     We are now of the view that the Companies  are obliged to repay the fees received for completed H&W, DC and UCS schemes as the Letter of Instructions (“LOI”) refers to them refunding  the fee if the Scheme is unsuccessful.  Consequently any clients who completed one of these Schemes will be deemed to be creditors.

4.      Insurance

Clients of the Companies are reminded of our previous update on the SDLT insurance (http://www.inventivetax.co.uk/insurance-summary).  We are awaiting advice regarding the impact our most recent advice on the failure of these three Schemes has on the insurance situation and will update clients in due course.