Cornerstone Tax Advisors respond to SRA Warning Notice over SDLT avoidance

*Advance notice for Cornerstone Introducers. Embargoed until 9am Monday 27th February* This Note is produced in response to the SRA Warning Notice issued on 16 February 2012 to all solicitors in the UK. The views contained herein are the views of Cornerstone Tax Advisors. Cornerstone Tax Advisors broadly supports the SRA warning and has actively helped the authorities with their enquiries into sharp practices of some SDLT scheme providers. Naturally, the SRA warning has created uncertainty for solicitors and their clients regarding SDLT planning due to the nature of some aggressive tax planning schemes that are currently being marketed. However, the SRA warning falls short on clarifying what it considers to be advice, planning and avoidance. It is imperative that solicitors need to understand this if the warning applies to them. We at Cornerstone will always give serious consideration as to whether or not any SDLT planning is disclosed to HMRC. We work alongside Counsel very closely and we will always endeavour to ensure that solicitors understand the tax position and minimise any risk of exposure to them and their clients. We can provide certified copies of Counsels' Opinions on a confidential basis. If you are in any doubt please contact us. Executive Summary The Warning Notice draws out the following to avoid the risk of disciplinary action 1. Identify a "scheme" as opposed to honest and proper tax planning; 2. Verify the professional provenance of the provider of the scheme - Qualifications, PI insurance, etc.; and 3. Ensure that Counsels' Opinions are genuine and retain a copy. It should be noted that Points 2 & 3 above are only relevant if a scheme is identified, although we would recommend that they are sought in all cases where anything more than pure advice is being offered. Our detailed analysis is given below but would add that it would be proper to enquire whether any solicitor has already been disciplined with respect to the scheme in question. Schemes, Planning and Advice The need to Identify The Notice is entirely silent on the word avoidance, which is something that we find quite curious whereas it explicitly defines an SDLT scheme and then below it, under Why the Principles?, says whilst buyers of property are free to use honest and proper tax planning to mitigate their liability. It therefore behoves anybody being asked to implement SDLT planning to be able to discriminate planning from schemes before being able to consider whether the Warning Notice is applicable to them. At Cornerstone we consider all of our advice in the light of the Disclosure of Tax Avoidance Schemes Regulations (DOTAS), Langham Vs Veltema disclosures (SP 1/06) and the impact of the general anti avoidance rules contained in Section 75A FA2003. As a result we are able to characterise our advice, planning and avoidance schemes based on these outcomes: 1.If a piece of advice does not fall within DOTAS, then, conclusively, it is not a scheme; 2.If a piece of advice or planning does not require a disclosure letter under Langham Veltema (SP1-06) then again it must be planning and not a scheme; and 3.If the general anti avoidance rule in Section 75A FA2003 does not bite on the advice/ planning then it is not avoidance and is not a scheme.

In all cases, with the exception of Lazarus, the current range of planning advice available to clients do not fail any of the above three tests, i.e., the vast majority of what Cornerstone does is planning and not avoidance. So in respect of these arrangements no regard need to be had for the Warning Notice. In future all Cornerstone advice will be updated to include a reference to these three basic tests to enable solicitors to readily and quickly understand the SRA Notices in point for the advice in question. Where the Warning Notice is not in point solicitors are, therefore, free to act. Counsels' Opinions Are They Real? The mere possession of a Counsels Opinion does not indicate avoidance in and of itself. Cornerstone has always obtained its own Counsels' Opinions and always instructed Counsel having done extensive technical research into both the tax viability and solicitors responsibilities in respect of all its advice. We are prepared to certify in writing, if required, that our Counsels' Opinions are genuine and have not been altered in any way by us. We have recently been approached by the authorities with a view to assisting them with their enquiries into several promoters of SDLT avoidance schemes who apparently have been utilising opinions that have been altered or otherwise disguised so that the firms proffering them appear to be the ones who originally instructed Counsel, when in fact they were not. It is a dishonest practice; and we would continue to assist the authorities in any way possible as any responsible professional firm would. Similarly, we have always been prepared to provide copies of Counsels' Opinions for solicitors to hold on their files, subject to commercial confidentiality arrangements, so that their position may be protected in respect of an SRA visit. SRA Visits to Solicitors We have been monitoring SRA visits to solicitors that have implemented Cornerstones advice. We are currently aware of 10 visits to various firms around the UK where all of the files on which Cornerstone have been the tax advisor have been examined. No disciplinary action has resulted as a direct result of the solicitor implementing our advice. This is not the case in respect of many other providers who have volume retailed schemes and who have failed to meet an objective professional standard in their dealings with the legal profession. Schemes and Insurance The SRA have quite properly identified an insurance element in advice as being the hallmark of an aggressive avoidance scheme. At Cornerstone we only offer insurance in respect of Lazarus. Our rationale is very simple; if the scheme is planning, i.e., proper and honest mitigation, then why do the costs need to be insured? This is not to say that any advice or planning is not subject to challenge, or that it is guaranteed to succeed, but merely that proper professional advice, properly given, under the aegis of Counsels advice, where appropriate, should not need costs recovery insurance in the event that the technical issue fails at tribunal. Clients who consider it vital that they should put themselves in a no-loss position when implementing tax advice should not, in our view, be put into any form of tax avoidance and should consider, because of their latent conservatism, whether they should be doing the scheme at all. Clients need to be, and in our case are, made fully aware of all the risks involved in taking complex tax advice and are invited, and able, to withdraw from the planning at any time up to and including completion of the transaction without financial penalty. Once implemented however, any fees payable are not recoverable where services delivered are those of advice/planning/mitigation. Conclusion Clearly the SRA Warning Notice is something of concern to all legal professionals and we are sure that everyone in the legal profession will have a view on it hopefully some will be expressed directly to the SRA

and the Law Society about HMRC getting free advertising on the SRA website! But more seriously we invite those reading this note to consider the tests in the earlier part of it and summary table attached in order to assist them in deciding whether the Warning Notice needs to apply in any particular set of circumstances. David Hannah ACA CTA 22 February 2012
Your responses are gratefully received at fwallace@ctatax.uk.com