GAAR: SDLT sub-sale planning unreasonable

The General Anti-Abuse Rule (GAAR) Panel has issued its opinion on a Stamp Duty Land Tax (SDLT) scheme which used sub-sale relief and an annuity in order to reduce the resulting SDLT charge on the purchase of a residential property to nil.

The GAAR Panel was asked to consider planning under which:

• Mr and Mrs A were to buy a residential property from a third party for £549k as Tenants in Common in ratios of 99% and 1% respectively.
• On completion, Mr A made a declaration of trust such that he held an 81% interest in the property in favour of Mrs A.
• In consideration, Mrs A granted an annuity with a capital value of £449k providing an annual payment of £1,122.
• The SDLT return was completed on the basis that the consideration paid for the property was 19% of the £549k purchase price plus 12 instalments of £1,122 under the annuity.
• This was on the basis that there had been a sub-sale, the declaration of trust, and particular valuation rules apply where annuities form part of the chargeable consideration for that sub-sale.
• As a result, no SDLT was paid.

The GAAR panel decided that neither entering into nor carrying out the tax arrangements was a reasonable course of action as:

• The results of the arrangements were not consistent with the legislative provisions as:
  • A straightforward purchase of a residential property for £549k would have led to a liability of £17,450.
  • Sub-sale relief was intended to provide relief from double taxation, the scheme utilised sub-sale relief to avoid any taxation on the property purchase.
• There are contrived or abnormal steps as:
  • There were simpler ways to achieve the ownership split, the scheme involved additional steps based on tax advice.
  • A premium fee was charged for that advice based on SDLT saved.
• If the arrangements succeeded there would have been one or more legislative shortcomings which would have been exploited.
• The planning results in a mismatch with the economic position as a residential property has been purchased for £549k without any associated SDLT charge.
• The arrangements were not in line with established HMRC practice.

Useful guides on this topic

General Anti-Abuse Rule (GAAR)
What is the General Anti-Abuse Rule (GAAR)? When does it apply? 

General Anti-Abuse Rule: GAAR at a glance (Freeview)
This note looks at the key features of the General Anti-Abuse Rule (GAAR) contained within the Finance Act 2013 and the basics of what you need to know about the provisions it contains when considering tax planning.

SDLT: Stamp Duty Land Tax, start here
What is SDLT? What are the SDLT rates? What is exempt from SDLT? What reliefs are available? When are returns due? When can you amend a return?

SDLT: At a glance, Stamp Duty Land Tax, rates & allowances
What is Stamp Duty Land Tax (SDLT)? What are the rates of Stamp Duty Land Tax (SDLT)?

External links

GAAR Advisory Panel opinion of 20 January 2023: Stamp Duty Land Tax arrangements in relation to the sale and purchase of a residential property that involves a sub-sale and an annuity