Tribunal Case Analysis: The Murphy SDLT Sub-sale Scheme Denied
In a recent tax tribunal decision, Michael Murphy and Julie Murphy’s attempt to minimise their Stamp Duty Land Tax (SDLT) obligations through a “husband-and-wife savings scheme” has officially been struck down by the First-tier Tribunal Tax Chamber.
The couple’s appeal against HMRC’s £8,310 SDLT assessment on a property purchase was dismissed after the tribunal ruled the sub-sale arrangement invalid under Sections 45 and 75A of the Finance Act 2003.
Background of the Case
The case, referenced as [2024] UKFTT 00947 (TC), revolved around the Murphy’s 2010 acquisition of a property in Hillingdon, London, for £277,000. The couple attempted to reduce their SDLT liability by structuring the transaction as a sub-sale. In this scheme, Mr. Murphy initially acted as the primary purchaser under a sale agreement with the original seller, then transferred his interest to both himself and Mrs. Murphy in a separate “sub-sale” transaction, wherein Mrs. Murphy would own 99% of the property.
The Murphy’s SDLT1 return reported a taxable consideration of £119,110, resulting in zero SDLT due. However, a later review by HMRC, spurred by discrepancies with the Land Registry and concerns over their solicitor’s involvement in similar avoidance schemes, led to a revised SDLT assessment of £8,310, based on the full property value of £277,000.
Legal Debate and Tribunal’s Ruling
The case hinged on two main legal issues:
Validity of the Discovery Assessment: Mr. Murphy argued that HMRC had insufficient grounds for a “discovery” under the statutory framework, claiming the tax authority’s process was a routine data check, not a true assessment of underpaid tax. However, the tribunal upheld HMRC’s discovery assessment, noting that the officer reasonably inferred a tax shortfall due to the disparity between the SDLT1 return and Land Registry values, coupled with the solicitor’s track record of avoidance schemes.
SDLT Calculation under Sections 45 and 75A of the Finance Act 2003: The tribunal analysed Section 45, which provides sub-sale relief for certain property transactions, and concluded that the Murphys’ arrangement did not meet the criteria. The scheme was effectively undone by Section 75A, which disregards avoidance transactions and re-imposes SDLT based on the original contract. As a result, the tribunal affirmed HMRC’s £8,310 SDLT assessment.
A Growing Trend?
This decision underscores HMRC’s heightened scrutiny of SDLT avoidance schemes, especially those involving “sub-sales” or third-party intermediaries, often marketed as “tax-efficient” property ownership solutions. The tribunal's stance suggests a tightening grip on such arrangements, signalling that even well-crafted sub-sale setups may fall short under detailed legal scrutiny.
Implications for Property Buyers
For prospective homeowners and investors, the case highlights the risks of DIY tax-saving strategies without qualified advice. The Murphy case illustrates that while tax planning is legal, complex schemes can lead to disputes, and even higher tax bills if HMRC challenges the approach.
As the Murphys face a bill they sought to avoid, the case serves as a cautionary tale for property owners considering unconventional SDLT arrangements.