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Retrospective Closure of Stamp Duty Loophole Lawful

In a case which sent a resounding deterrent message to would-be tax avoiders, disgruntled participants in a sophisticated scheme designed to minimise their exposure to stamp duty have failed to convince the High Court that the retrospective closure of a perceived legislative loophole violated their human rights.

The scheme had taken advantage of what was believed to be a flaw in Section 45 of the Finance Act 2003, a provision which was designed to avoid the risk of double taxation and to ensure that the burden of stamp duty fell on persons who were going to have use and enjoyment of relevant properties. HM Revenue and Customs (HMRC) took the view that the scheme was ineffective in any event. However, any doubt about that was removed by the passage through Parliament of Section 194 of the Finance Act 2013, which closed the possible loophole.

Participants in the scheme argued that the amount of tax lost to the Exchequer by operation of the scheme, in the order of £7 million, was too small to justify the use of retrospective legislation to close it down. They launched judicial review proceedings, seeking a declaration that the change in the law breached their right to peacefully enjoy their private property, enshrined within Article 1 Protocol 1 of the European Convention on Human Rights. In particular, they argued that the change had not been announced in advance, in accordance with Government protocols.

In dismissing the challenge, however, the High Court noted that the fact that the legislation was retrospective did not of itself render it incompatible with Article 1. The Government had a wide margin of appreciation in balancing the requirements of the community in general against the rights of individual taxpayers.

Participants in the scheme and a plethora of others like it had been clearly and repeatedly warned by HMRC that they would be shut down and it was a legitimate and important aim of public policy in fiscal affairs to ensure that everybody buying property paid their fair share of stamp duty.

The amount of tax involved may have been of little or no significance in the grand scheme of things but Parliament had been entitled to send the powerful deterrent message it did. There was, the Court concluded, nothing arbitrary or capricious about the decision to take decisive action with retrospective effect.