Stamp Duty Land Tax
HMRC has recently succeeded in winning a major case which defeats a widely marketed scheme to avoid Stamp Duty Land Tax. The case involved an aggressive SDLT avoidance scheme promoted by a number of accountancy firms.
A subsidiary company in a group of companies wanted to acquire property costing £7.2 million. Direct purchase would have incurred SDLT of £290,000. However, the group structured the purchase through a newly formed unlimited company, which immediately distributed the property as a dividend to the shareholder company.
HMRC challenged this device and its challenge was upheld by a tax tribunal. The tribunal ruled that the unlimited company had not properly carried out company law requirements for declaring a dividend and that in reality the ultimate owner of the property had indirectly provided the purchase price. For either of these reasons, the avoidance scheme failed and SDLT was due.
The Government has said that this is a message to tax avoiders that it will challenge tax avoidance relentlessly and will urge the courts to see through arrangements which are put in place just to avoid tax.
In addition the Government intend to introduce new regulations which will give HMRC better access to information about avoidance schemes and those who promote and use them. The new rules are designed to ensure that both promoters and users of SDLT sub-sale avoidance schemes will be forced to disclose them to HMRC. They will also catch SDLT avoidance schemes involving residential property with a value of up to £1 million and schemes involving commercial property with a value of up to £5 million in the same way as now applies to schemes involving properties worth more than these amounts.
The Government wants to make sure that anyone marketing or using SDLT avoidance schemes must notify HMRC so that they can be identified and challenged.
Neighbour not liable for fire damage
In a well-known legal case dating back to the 19th Century, Rylands -v- Fletcher, the Courts ruled that a landowner has strict liability for damage caused by their non-natural use of land. The “Rule in Rylands -v- Fletcher”, as it is known, is that a person who “for his own purposes brings on his land, and collects and keeps there anything likely to do mischief if it escapes, must keep it at his peril, and, if he does not do so, is prima facie answerable for all the damage which is the natural consequence of its escape”.
This means there is strict liability for the foreseeable consequences of failure to control the risk, but a landowner will not have any liability only natural use of the land has taken place.
In a recent case the Court of Appeal considered whether a landowner was liable for damage to a neighbouring property which was caused by fire which, through no fault of the landowner, “escaped” from his land.
In the case a company operated a tyre business on a trading estate. About 3,000 tyres were stored on the premises. A fire broke out which was caused either by the wiring or electrical appliances on the site, but there was no fault on the part of the company. The fire spread to an adjoining business which was completely destroyed.
The neighbouring business brought a claim against the tyre company, but was unsuccessful. The Court of Appeal ruled that, although damage caused by fire from an adjoining property could fall within the Rylands -v- Fletcher rule, such a case is likely to be very rare. In this particular case the landowner was under no liability and so the neighbour’s claim would only be successful if there had been proof of negligence.
This ruling by the Court of Appeal highlights the importance of having adequate insurance cover for any losses caused by fire on your premises.
The comments in this note are of a general nature only. Full advice should be sought on any specific problems.