HMRC SDLT: SDLTM09090 – Intention and purpose of the legislation

Intention and Purpose of the Legislation

This section of the HMRC internal manual outlines the intention and purpose behind specific legislation. It provides guidance on understanding legislative goals and ensuring compliance with tax regulations.

• Explains the rationale behind tax laws.
• Guides on interpreting legislative intent.
• Assists in applying laws correctly for compliance.
• Targets HMRC staff for internal use.
• Ensures consistent application of tax policies.

Understanding Section 75A of the Stamp Duty Land Tax (SDLT) Legislation

Introduction to Section 75A

Section 75A was brought into law in 2006. It was created to tackle methods and plans that aimed to reduce or completely avoid paying tax in a way that did not align with the purpose of the SDLT laws.

How Section 75A Works

Section 75A functions by applying specific conditions and rules outlined in its guidance. This approach is different from other tax avoidance laws because it does not involve a ‘main purpose’ test for tax avoidance.

Objective Test for Application

The law is based on an objective test. This means that it focuses purely on whether certain conditions are met, without looking into the motivations behind the transactions.

Key Points of Section 75A

– No motive requirement: It does not matter if there was a specific intention to avoid tax from anyone involved in the property transaction.
– Tax savings result: The law is activated simply if the series of transactions leads to lesser tax or no tax being owed.

Legal Context: Project Blue Ltd Case

The interpretation and functioning of Section 75A were clarified in the Supreme Court case between Project Blue Ltd and HMRC in 2018. Lord Hodge, who delivered the ruling, explained that:

– It is enough for Section 75A to apply if there is any tax saving from the series of transactions, regardless of the underlying reasons for carrying them out.

This ruling underscores the law’s aim to prevent tax avoidance practices.

Conditions for the Application of Section 75A

For Section 75A to take effect, the following conditions must be met:

– Transaction series: There should be a series of transactions that together lead to a tax benefit.
– Tax outcome: The end result of these transactions results in a reduced or non-existent tax obligation.

Examples of Transactions Affected by Section 75A

To understand how Section 75A operates, let’s consider some hypothetical transactions:

1. Example 1: Property Transfer
– A company transfers a property to another company where they have common ownership but structures the deal so that they pay no SDLT. Even if there was no intention to avoid tax, Section 75A applies because the result is a tax saving.

2. Example 2: Series of Sales
– Assume a person sells a property to another person in a way that appears normal but includes additional steps that eventually lead to no SDLT being payable. Even if the seller claims that tax avoidance was not their goal, Section 75A can be applied due to the outcome of the transactions.

Focus and Importance of Section 75A

Section 75A was not just created as an extra rule; it serves an essential function in the system of tax law regarding property transactions.

Preventing Evasion

– The primary purpose of Section 75A is to close loopholes that individuals or companies might exploit to avoid taxes unfairly.
– This ensures that all parties involved pay the appropriate amount of SDLT as intended by the legislation.

Ensuring Fairness in Taxation

– By applying an objective test rather than one based on intention, Section 75A promotes fairness.
– It prevents people from escaping their tax obligations simply by claiming they had no intention to avoid tax when in fact the series of transactions they arranged led to a tax exemption.

Potential Implications of Section 75A

The implications of Section 75A are significant for anyone involved in property transactions. Here are some potential outcomes if Section 75A applies:

– Tax Liability: Individuals or companies might find themselves with unexpected tax liabilities if their transactions are scrutinised and found to have resulted in SDLT savings.
– Reassessments by HMRC: HMRC may perform reassessments of tax obligations based on Section 75A, leading to possible additional charges and penalties for non-compliance.

When to Be Cautious

Parties engaging in property transactions should be particularly cautious when structuring deals. Here’s what to keep in mind:

– Seek Professional Advice: Always consider seeking guidance from legal or tax professionals when arranging property transactions to ensure compliance with SDLT laws, especially if you envisage that your arrangements may appear complex or unconventional.
– Transparency: Ensure all arrangements are transparent and clearly documented. This can help avoid conflicts regarding tax obligations later on.

Conclusion Points on Section 75A

Section 75A plays an important role in maintaining the integrity of SDLT legislation. Its objective nature allows it to apply without requiring the presence of an intent to avoid tax. Understanding how it operates can help individuals and companies navigate property transactions more effectively while fulfilling their tax responsibilities.

For more detailed information on SDLT regulations, visit: SDLTM09090 – Intention and purpose of the legislation.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09090 – Intention and purpose of the legislation

View all HMRC SDLT Guidance Pages Here