How does tax avoidance get people into trouble?

[fisher]

If you want to wade through a lot more info on tax avoidance schemes then this is a good site to start from: https://forums.contractoruk.com/hmrc-scheme-enquiries/

Some of the folks who signed up for the dodgy offshore loan schemes are now finding that in addition to HMRC wanting to charge them tax on the loans, the companies loaning the money have wound up and sold their loan books to third parties who are now claiming the loan needs to be repaid to them or at least a significant fee paid to write off the loan.

[Mike4]

Probably. Sounds a bit like those schemes where someone sells their house for £100K and then sells separately the fixtures and fittings for £400K, to lower the stamp duty.

What would be the difference between using a "scheme" to do this, and just doing it?

Just curious.

[vandefrosty]

Probably. Sounds a bit like those schemes where someone sells their house for £100K and then sells separately the fixtures and fittings for £400K, to lower the stamp duty.

What would be the difference between using a "scheme" to do this, and just doing it?

Just curious.

Presumably something like:

" Thanks for the house for £100k. It's a great deal. But I've been thinking about that other stuff. £400k seems a bit expensive so I don't want it any more. I'm off to Ikea and B&Q. But thanks again for the house."

So the sensible seller still needs an intermediary.

Greg

PS - The ultimate scam probably continues. "Actually you'll need to remove the fittings and all before I take possession, or I'll have to bill you for removing them afterwards"!

[stevensfo]

What would be the difference between using a "scheme" to do this, and just doing it?

Just curious.

Presumably something like:

" Thanks for the house for £100k. It's a great deal. But I've been thinking about that other stuff. £400k seems a bit expensive so I don't want it any more. I'm off to Ikea and B&Q. But thanks again for the house."

So the sensible seller still needs an intermediary.

Greg

PS - The ultimate scam probably continues. "Actually you'll need to remove the fittings and all before I take possession, or I'll have to bill you for removing them afterwards"!

So the sensible seller still needs an intermediary.

Why? Surely, you simply include all these details in the contract when you sell the place.

Steve

[bluedonkey]

Here's a bit more background to the subject:

https://www.taxadvisermagazine.com/arti ... nvironment

[vandefrosty]

So the sensible seller still needs an intermediary.

Why? Surely, you simply include all these details in the contract when you sell the place.

Steve

But isn't some form of deception necessary to avoid easy detection, surely by the solicitors at the time, or by HMRC if they have reason to question it later?

I must admit that I'm not aware of how this 'scheme' is supposed to work, and it's not clear where the benefit is for the seller - presumably part of the buyer's stamp duty saving is shared via a higher sale price.

I'd assumed that the house value would appear in the contract, but the overvalued fittings price would have to be hidden to avoid the revealing what's really going on. The easiest way to do that would be with a separate agreement, executed independently of the conveyancing solicitors. But how can the seller trust the buyer on that when his duplicity is already fully revealed. So the buyer has a clear interest in ensuring that both agreements are completed at the same time, or he runs the risk of being in the situation of my anecdote. That's what the intermediary would be for.

Anyway, it's all hypothetical as no one here is so dishonourable as to consider such an undertaking!

Greg

[pje16]

But how can the seller trust the buyer

That reminds me,
on the day of a house I was buying, I happened to be working 200 miles away from the property
the seller phoned me to ask if I wanted to buy an extended ladder from him that was in the garage
I said yes and he said is £20 quid OK
We agreed, but he then said I can trust you to pay me the money?
I said I am trusting you that there is a ladder in the garage
it all went fine.

[Dod101]

What would be the difference between using a "scheme" to do this, and just doing it?

Just curious.

Presumably something like:

" Thanks for the house for £100k. It's a great deal. But I've been thinking about that other stuff. £400k seems a bit expensive so I don't want it any more. I'm off to Ikea and B&Q. But thanks again for the house."

So the sensible seller still needs an intermediary.

Greg

PS - The ultimate scam probably continues. "Actually you'll need to remove the fittings and all before I take possession, or I'll have to bill you for removing them afterwards"!

Yes but considering that it is usually the buyer that benefits, why would the seller propose such a division of the purchase price?

Back to the topic, About 20 years ago when I sold my previous house, my buyer proposed a division of the purchase price exactly along these lines. At the time, the stamp duty increased on a purchase price over £500,000 so he said that the purchase price of £525,000 should be regarded as to £500,000 for the building and £25,000 as to the contents. I did not like that but as long as I was getting my money well so what? But I always regarded it as a lot of money for a kitchen dresser and a few other bits and pieces scattered throughout the house.

I was never sure if I would have been regarded as a party to the tax avoidance but heard nothing more.

Dod

[88V8]

Presumably something like:
" Thanks for the house for £100k. It's a great deal. But I've been thinking about that other stuff. £400k seems a bit expensive so I don't want it any more. I'm off to Ikea and B&Q. But thanks again for the house."

About 20 years ago when I sold my previous house, my buyer proposed a division of the purchase price exactly along these lines. At the time, the stamp duty increased on a purchase price over £500,000 so he said that the purchase price of £525,000 should be regarded as to £500,000 for the building and £25,000 as to the contents....
I was never sure if I would have been regarded as a party to the tax avoidance but heard nothing more.

I think that so long as the price does not look abnormally cheap to the District Valuer's office, there will be no problem. Assuming the DV even has the staff to check sale prices nowadays.

V8

[Lootman]

considering that it is usually the buyer that benefits, why would the seller propose such a division of the purchase price?

The buyer and seller could collude. splitting the stamp duty saving.

The other stamp duty scam was mentioned upthread, using a company to buy a property. Then for subsequent sales, it is the company that is sold whilst the property title stays the same - owned by company XYZ.

About 20 years ago when I sold my previous house, my buyer proposed a division of the purchase price exactly along these lines. At the time, the stamp duty increased on a purchase price over £500,000 so he said that the purchase price of £525,000 should be regarded as to £500,000 for the building and £25,000 as to the contents....
I was never sure if I would have been regarded as a party to the tax avoidance but heard nothing more.

I think that so long as the price does not look abnormally cheap to the District Valuer's office, there will be no problem. Assuming the DV even has the staff to check sale prices nowadays.

I was not aware that a DV would do that anyway. Aren't they only concerned with valuations for council tax, not stamp duty which is a HMRC issue?

[GeoffF100]

Apart from knowing that Evasion is illegal and Avoidance isn't, I'm not really sure what tax avoidance actually is (Isn't an ISA one?).

That is no longer true. Tax Avoidance (as defined by law) is now illegal. Avoiding tax, on the other hand, is legal provided that it does not constitute Tax Avoidance. Here is HMRC's introduction to Tax Avoidance:

https://www.gov.uk/guidance/tax-avoidan ... troduction

[Mike4]

The other stamp duty scam was mentioned upthread, using a company to buy a property. Then for subsequent sales, it is the company that is sold whilst the property title stays the same - owned by company XYZ.

Is that considered a scam then? To me it seems a perfectly legitimate way of avoiding SDLT.

[pje16]

Apart from knowing that Evasion is illegal and Avoidance isn't, I'm not really sure what tax avoidance actually is (Isn't an ISA one?).

That is no longer true. Tax Avoidance (as defined by law) is now illegal. Avoiding tax, on the other hand, is legal provided that it does not constitute Tax Avoidance. Here is HMRC's introduction to Tax Avoidance:

https://www.gov.uk/guidance/tax-avoidan ... troduction

What a shame that HMRCs understanding of English has gone down hill

[Lootman]

The other stamp duty scam was mentioned upthread, using a company to buy a property. Then for subsequent sales, it is the company that is sold whilst the property title stays the same - owned by company XYZ.

Is that considered a scam then? To me it seems a perfectly legitimate way of avoiding SDLT.

I do not know for certain. But it was claimed upthread that Tony Blair did this, so presumably it was OK at that time anyway.

[scrumpyjack]

The other stamp duty scam was mentioned upthread, using a company to buy a property. Then for subsequent sales, it is the company that is sold whilst the property title stays the same - owned by company XYZ.

Is that considered a scam then? To me it seems a perfectly legitimate way of avoiding SDLT.

As I recall they closed that loophole some time ago, though I can't remember the details.

[stevensfo]

Apart from knowing that Evasion is illegal and Avoidance isn't, I'm not really sure what tax avoidance actually is (Isn't an ISA one?).

That is no longer true. Tax Avoidance (as defined by law) is now illegal. Avoiding tax, on the other hand, is legal provided that it does not constitute Tax Avoidance. Here is HMRC's introduction to Tax Avoidance:

https://www.gov.uk/guidance/tax-avoidan ... troduction

I looked at the link but I cannot find where it says it's illegal.

On the contrary, it simply says to take care and to check the scheme carefully. i.e. it 'may' get you in trouble.

Tax avoidance involves bending the rules of the tax system to try to gain a tax advantage that Parliament never intended.
It often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage. It involves operating within the letter, but not the spirit, of the law.
Most tax avoidance schemes simply do not work, and those who use them may end up having to pay much more than the tax they tried to avoid, including penalties.

It involves operating within the letter, but not the spirit, of the law.

What a strange sentence! Was this really composed by highly paid, intelligent lawyers? Who defines what constitutes 'the spirit'

Steve

[Alaric]

As I recall they closed that loophole some time ago, though I can't remember the details.

I believe you can still hold property through a limited company and it's a useful device if intending to frequently buy or sell by cutting out all the issues coupled with ownership changes to land and buildings.

There are tax consequences though

https://www.optimiseaccountants.co.uk/k ... -property/