HMRC introduces new regulations to curb tax avoidance on high value residential properties

HM Revenue and Customs (HMRC) announced today that new regulations have been established to ensure the disclosure of schemes designed and marketed to avoid paying the Annual Tax on Enveloped Dwellings, which was introduced in April this year to counter avoidance of Stamp Duty Land Tax on UK residential properties valued over GBP2m.

Companies that own high value residential properties are now required to pay an annual charge to HMRC, the UK’s tax authority. For a property valued between GBP2m and GBP5m the tax per year is GBP15,000. The charges rise to GBP140,000 for properties valued at more than GBP20m.

The Disclosure of Tax Avoidance Schemes (DOTAS) will mean that users of schemes that provide an unfair tax advantage must provide details of those schemes to HMRC, which uses the information in its compliance work. Failure to report details of these tax avoidance schemes will result in penalties of up to GBP1m. Users who fail disclose the use of a scheme on a tax return will be fined GBP100 for the first failure, GBP500 for the second and GBP1,000 for subsequent failures.

The changes to DOTAS regulations mean that the Annual Tax on Enveloped Dwellings is added to the regime where current schemes designed to reduce a user’s tax bill for income tax, corporation tax, capital gains tax, inheritance tax, national insurance contributions, stamp duty land tax and VAT must be disclosed. HMRC said these new regulations build on the work from the 2012 Lifting the Lid consultation which looked at tackling avoidance schemes.

A further measures to stop tax avoidance also requires promoters of avoidance schemes to provide HMRC with details of their client’s national insurance number and unique taxpayer reference. The provision of these details will help HMRC to detect and investigate tax avoiders. It will also be more difficult to avoid paying tax by using ‘disguised remuneration’ schemes.

Exchequer Secretary David Gauke commented:

“This Government has been clear – aggressive tax avoidance is unacceptable and will not be tolerated. The regulations we are laying mark a significant strengthening of the rules and build on the considerable work we have done to tackle not only tax avoidance schemes but also the promoters of these schemes.”