The Chancellor’s spring budget may have been designed with votes in mind, but beating tax avoidance remains at the core of his plans, writes Mike Hardwick


In many respects there were few surprises in the chancellor’s Budget last week.

The much-heralded increase in the threshold for paying stamp duty land tax (SDLT) was widely predicted, even if the threshold level of £120,000 was not. This was perhaps the most significant pre-election tax sweetener in this Budget and the major one of interest to lawyers, particularly as it comes into effect almost immediately (that is, it applies to transactions that complete or have an effective date on or after 17 March). But this sweetener is countered by a myriad of new anti-avoidance provisions and the removal of disadvantaged areas relief in relation to commercial property transactions.


Commercial land transactions &150; which include the transfer of freehold and the grant, assignment or assignation of a lease &150; will not be eligible for disadvantaged areas relief where completion (or effective date) is on or after 17 March. Therefore, SDLT will have to be paid on properties of more than £150,000.


However, there is transitional relief where contracts are entered into on or before 16 March. In these circumstances, provided that there is no variation or assignment of the contract or sub-sale of the property and that the transaction is not the exercise of an option or right of pre-emption, the relief can still be claimed. The rules relating to disadvantaged areas relief for residential property are unaffected.


A theme running through the Budgets for the past few years has been compliance and enforcement. This year is no exception. The government remains pre-occupied about avoidance of tax and unsurprisingly, anti-avoidance measures featured heavily in the Budget papers. Following the introduction of the disclosure of tax schemes regime last year, the government has been busy analysing the reports received under the regime and has produced a range of anti-avoidance measures.


From 17 March, the government has acted to block avoidance schemes that have been used to reduce or eliminate liability to SDLT on land transactions. These measures include, for example: arrangements that exploit group relief and acquisition relief to enable land to be transferred out of a group without the purchaser paying SDLT or with the purchaser paying tax at 0.5%; the use of nominees to avoid the charge on leases; and schemes purporting to disguise the purchase price as a (potentially repayable) loan or deposit. As with the removal of disadvantaged areas relief, there is transitional relief where contracts are entered into on or before 16 March.


Anti-avoidance measures are not limited to the SDLT. Three measures to counter avoidance of tax on capital gains are being introduced with effect from 16 March. The new rules will ensure that trustees of settlements who are UK resident for capital gains tax purposes for only part of a tax year cannot exploit certain double taxation agreements to avoid UK tax. The rules will also ensure that individuals cannot exploit certain double taxation agreements to avoid UK tax on capital gains realised while they are temporarily non-UK resident for tax purposes; and they expand the range of assets that are treated as located in the UK for the purposes of tax on capital gains.


Additional measures mean that from 16 March double taxation relief cannot be exploited to give a tax advantage. Excessive double taxation relief will not be allowed where the relief results from a scheme or arrangement that has tax avoidance as a sole or main objective and one or more of five specified circumstances apply.


The disclosure of tax schemes is something that many practitioners are already aware of. The scope of the regime is being widened from


1 July to include notification of schemes and arrangements intended to avoid SDLT on commercial property transactions in the UK that have a value in excess of £5 million.



Lawyers will be interested in the draft regulations the Inland Revenue publishes in relation to this; the extension of the regime means that many more practitioners will have to become familiar with the disclosure rules. In response to the introduction of the regime in 2004, the Law Society published guidance dealing with legal professional privilege issues, which remains current and can be found on the tax law page of the Society’s Web site. visit: www.lawsociety.org.uk.



Other points of interest are the increase in the inheritance tax threshold to £275,000 from 6 April and the extension of special arrangements to facilitate the use of alternative finance products (commonly referred to as Islamic mortgages) to those that are Shari’a compliant.


On a practical note for smaller firms, the Inland Revenue and Customs (soon to become the combined HM Revenue and Customs) will consult on a single tax account for small business where information needs be provided only once, a single point of contact for both VAT and corporation tax, and flexible payment options.


Mike Hardwick is chairman of the Law Society’s tax law committee and tax partner at City-based law firm Linklaters