The Solicitors Regulation Authority (SRA) has fined two more law firms for advising on conveyancing transactions in which clients were party to schemes to avoid paying stamp duty land tax (SDLT) The transactions involved schemes which aimed to reduce, or cancel altogether, the clients’ liability for stamp duty.
Two-partner firms Hawkins Ryan and Benson Mazure, are the latest to join several firms that were fined for similar offences, including leading Surrey firm Mundays, to sign regulatory settlement agreements with the SRA for which fines of £2,000, the maximum the SRA can currently fine without a referral to the Solicitors Disciplinary Tribunal, plus costs were agreed. Both firms admitted to failing to disclose material information to lender clients, acting in transactions in which there was a conflict, or significant risk of conflict, between the interests of two or more clients, and breaching accounts rules by failing to keep records properly written up.
Anti-avoidance legislation came into force at the end of 2006 aimed at challenging property sale arrangements which were artificially structured to avoid paying the correct amount of tax, furthermore, HMRC issued technical newsletters in August 2007, June 2010 and April 2013, which demonstrated that HMRC did not consider the schemes to be legitimate tax avoidance schemes.
The ‘unlimited company scheme’ involved the buyers setting up a special purpose vehicle whose specific purpose was to buy the property from the seller, after which the company was wound up and its assets distributed. In theory this kept the transaction as a distribution of assets to company shareholders and therefore not one subject to SDLT.
The ‘crystal’ scheme involved the buyer buying the property and then exchanging contracts with an offshore company immediately after completion for a nominal consideration – below SDLT levels – with the completion date set for 124 years. The object of the second contract was to permanently delay the effect of section 75A of the Finance Act 2003, and so avoid SDLT.
The regulator said firms have an obligation to disclose to its clients, both purchasers and lenders, all relevant information about the schemes. The firms did not tell the lenders that the purchaser client was using a SDLT scheme to avoid paying stamp duty, Nor did they tell the lenders how the transactions were structured. Therefore the firms did not give material information to the lenders which enabled them to reach an informed decision as to whether to proceed with the mortgage offer or renegotiate terms. The firms did not inform their lender clients that, in some cases, options had been granted with completion dates to take place in the future. In failing to disclose material information, the firms failed to act in the best interests of their lender clients , and behaved in a way that is likely to diminish the trust the public places in the profession contrary to the Solicitors Code of Conduct.
Hawkins Ryan was given a £2,000 fine by the SRA , the firm also agreed to pay the SRA’s costs of £3,636. Benson Mazure agreed to pay the £2,000 fine plus costs of £12,129.