High Court set to plug property tax loophole

A legal loophole that allows property companies to escape paying millions of pounds in stamp duty is expected to be plugged following a ruling in the High Court.

Property companies have managed to avoid hefty stamp duty payments by using complex legal structures in offshore centres such as Jersey and the West Indies.

The wheeze allows groups to buy properties using an “offshore declaration of trust scheme” whereby a purchaser obtains beneficial ownership of a property but the legal ownership stays with the vendor.

When transfer of legal ownership takes place, stamp duty is only paid on the nominal value of the building, usually about 50p. Nominal value is paid on the grounds that what is being transferred is legal ownership, the more valuable element of beneficial interest not being part of the transfer.

But recently, the Stamp Office has wised up to the dodge and has forced companies to pay the full duty.

Kay Butler, head of tax at City firm Olswang, said: “Until now, it was thought that as long as the declaration of trust was kept offshore, stamp duty could be avoided indefinitely.

“The Stamp Office has always challenged the scheme but it appears it now has the backing of the courts. Unless the case is successfully appealed it seems likely the scheme will cease to be used.”

She advises any companies considering using the scheme to contact their legal advisers.

But any clamp down is unlikely to curb the current appetite for property deals.

Travers Smith Braithwaite recently acted for Slough Estates in the sale to Disney of a development to be built at Centre West, Hammersmith. SJ Berwin acted for Disney.

Elsewhere, Nabarro Nathanson has completed the purchase of two central London buildings for German fund group BIG Immo Invest. The buildings are the first purchased by the fund in the UK.

Chester solicitors The Property Law Practice acted for national house builder Wainhomes in its £24.5 million acquisition of a building licence for 21 development sites. The vendor was ECC Construction, a subsidiary of English China Clay, represented by Stephens & Scown, of St Austell.