The Solicitors Regulation Authority (SRA) have fined leading law firm, Mundays, after it was found to be using stamp duty land tax (SDLT) avoidance schemes to save their clients over £2.5 million.
The firm based in Cobham, Surrey was not charging clients for this service and promoters of the scheme were able to bill over £1 million as a result of the schemes.
Valerie Toon, managing partner of Mundays, has reportedly claimed the advertising stopped in 2012, after having received advice from the SRA. Toon also says changes in regulations had made it more difficult for firms to truly understand what was deemed acceptable.
In the regulatory settlement agreement, it states the SRA inspected the firm back in May 2013. The regulatory body and HMRC discovered the transactions that were being promoted were in fact subject to stamp duty.
Cobham is an affluent area within Surrey and has some of the highest property prices within the UK, with the largest homes regularly being sold for millions. That said, it’s believed one of the main aims of the schemes was to minimise or even avoid paying stamp duty on the local properties. The HMRC however, deemed the schemes to be illegitimate tax avoidance schemes – a decision supported by the anti-avoidance legislation which was enforced back in December 2006.
The SRA have stated, "During the course of the inspection, the firm provided details of conveyancing transactions where SDLT mitigation or avoidance schemes were utilised by the firm’s clients.
"The report identified that, between November 2009 and March 2012, the firm had undertaken 25 conveyancing transactions where clients had been a party to a SDLT scheme to avoid paying stamp duty. This resulted in clients avoiding SDLT worth £2,595,291.25."
An interesting point to note within this case is that two of the promoting companies, Inventive Tax Strategies and the associated Sterling Tax Strategies Limited, both went into administration at the end of 2013. Another, Mulbury Hamilton Tax Chambers Limited is now set to be removed from the Register of Companies, according to the SRA.
Though Mundays were obliged to inform clients about the schemes, the SRA say the firm failed to do so, as well as not explaining how the transactions were structured. This omission of information prevented lenders from making an informed decision on the mortgage offer, thus the firm were not acting within the client’s best interest.
Clients were also not advised on the next steps should the schemes be unsuccessful, causing the buyers to seek reimbursement from the promoters.
The case closed with the offending firm being fined £2000 — the maximum penalty that can be enforced without being referred to the Solicitors Disciplinary Tribunal. They have also agreed to pay a further £5,000 in additional costs.
Toon added, "It’s important to understand also that these conveyancing schemes accounted for less than 1% of our turnover at the time we advised on them, and we never charged extra for implementing them, which the SRA accepts.".