The government has published a consultation document on SDLT anti-avoidance and disclosure for high value residential property acquired via special purpose vehicles (SPVs). See further Legal update, Consultation on SDLT avoidance and disclosure.

Three particularly noteworthy issues will arise if the proposals in that consultation document are implemented unchanged:

1. Potentially, a 4.5% effective tax liability arises (compared with 4% SDLT for direct acquisitions) where the SPV is a UK company: the SPV is liable to the 4% "indirect charge" and the buyer is liable to 0.5% stamp duty on the share transfer. The proposals are not restricted in application to UK corporate SPVs so it is prudent to assume that overseas corporate SPVs are caught, but it is unclear how the indirect charge or disclosure requirement can be enforced against overseas companies.

2. The basis of calculation of the indirect charge is not clear. Although it is stated to be 4% "on the transfer of shares", there is no indication as to whether it is calculated on the share consideration or on the market value of the property.

3. No anti-avoidance motive test is incorporated, so "innocent" buyers are caught. The proposals will affect corporate buyers (and also individuals using corporate structures to make acquisitions for buy-to-let businesses). SPVs are used, absent any tax-avoidance agenda, to protect investors (particularly individuals) by containing the financial risk within a company structure and/or to achieve commercial objectives. Sellers may wish to dispose of properties (that have historically been acquired within an SPV) via a share sale so as not to lose out on allowable base costs for those shares. Depending on the parties' bargaining power, the seller may refuse a direct disposal or be forced to reduce the share price to reflect the buyer's funding of the SPV's indirect charge liability.