When a couple wished to avoid paying Stamp Duty Land Tax (SDLT) on the purchase of a property, they hit on what looked to them like a great idea. Instead of buying the property outright, they paid for it in two stages – a deposit, plus the purchase of an annuity to be assigned to the seller. The annuity paid annually was very small, but the seller had the right to redeem it for a lump sum (£726,750), which corresponded to the expected balance due based on the market value of the property at the time of the sale.
Tax law relating to the assignment of annuities places a charge on the value of the first 12 (only) years’ payments under the annuity.
The net effect of the arrangement, or so the couple thought, was that the house purchase did not carry a charge to SDLT, which would otherwise have been more than £30,000.
HM Revenue and Customs (HMRC) challenged the tax treatment of the sale and persuaded the First-tier Tribunal that the payment on completion from the annuity was made at the direction of the purchasers and, in any event, anti-avoidance legislation would prevent the scheme from being effective. The whole of the consideration therefore fell into charge, not just the 12 annual annuity payments.
HMRC’s SDLT assessments and all but one of the related penalty notices were confirmed.