Stamp Duty Avoidance vs Evasion
Understanding the critical legal distinction between legitimate tax planning, aggressive avoidance schemes, and illegal evasion. HMRC enforcement has intensified significantly following the April 2025 reforms and January 2026 s75A broadening.
In this article
The Legal Distinction
The boundary between lawful tax planning and unlawful evasion is critical. Understanding this distinction protects taxpayers from criminal prosecution while enabling legitimate planning within the law.
Legitimate Tax Planning
Using legal provisions and reliefs as Parliament intended. Examples include claiming Multiple Dwellings Relief correctly, structuring purchases to qualify for First Time Buyers' Relief, or timing transactions appropriately.
- • Fully compliant with tax law
- • Uses reliefs as intended
- • Transparent to HMRC
- • Commercially driven
Tax Evasion (Illegal)
Deliberately misrepresenting facts, concealing information, or providing false returns to reduce tax liability. This is a criminal offence punishable by imprisonment and unlimited fines.
- • Criminal offence
- • Conceals facts from HMRC
- • False or misleading returns
- • Prosecution risk
Aggressive Tax Avoidance (Grey Area)
Arrangements that technically comply with the letter of the law but contradict its spirit or purpose. While not illegal, these may be challenged by HMRC under the General Anti-Abuse Rule (GAAR) or specific anti-avoidance provisions like s75A.
- • May be technically legal but challengeable
- • Exploits loopholes or unintended consequences
- • Subject to GAAR or targeted anti-avoidance rules
- • Penalties up to 60% if defeated
- • Reputational risk and professional scrutiny
Examples of Each Category
Legitimate Planning
- •Multiple Dwellings Relief: Correctly claiming relief when purchasing a property with multiple self-contained dwellings (e.g., flat above a shop).
- •Timing: Delaying completion to fall after your main residence sale completes, avoiding the higher rates surcharge.
- •First Time Buyers' Relief: Ensuring purchase price stays within £625,000 threshold to qualify for relief.
- •Charity Relief: Genuine charitable purchases claiming full exemption where conditions met.
Aggressive Avoidance
- •Sub-sale schemes: Inserting intermediate transactions to artificially reduce chargeable consideration (now largely blocked by s75A).
- •Partnership injection: Using partnership rules to reduce stamp duty through artificial profit-sharing arrangements.
- •Lease/leaseback schemes: Creating artificial lease structures to avoid purchase treatment.
- •Covenant arrangements: Using restrictive covenants to depress value artificially at completion, then lifting post-transaction.
Tax Evasion (Criminal)
- •False declarations: Understating purchase price on SDLT return to reduce tax.
- •Concealing consideration: Off-the-record cash payments not declared to HMRC.
- •Forged documents: Creating false contracts or valuations to misrepresent transaction.
- •Non-disclosure: Deliberately failing to submit SDLT return when required.
HMRC Enforcement Powers
HMRC has extensive powers to investigate and challenge stamp duty arrangements. Enforcement activity has increased significantly since April 2025 due to higher rates creating greater incentive for avoidance.
Key Enforcement Tools
- 1.Enquiry powers: HMRC can open enquiries into SDLT returns within 9 months (or 6 years if linked to DOTAS scheme).
- 2.Information notices: Power to require documents, emails, and transaction details from taxpayers and third parties.
- 3.s75A Anti-Avoidance Rule: Disregards arrangements designed to avoid or reduce SDLT. January 2026 Court of Appeal ruling in Tower One Properties broadened interpretation significantly.
- 4.GAAR (General Anti-Abuse Rule): Allows HMRC to counteract abusive tax arrangements. More aggressively applied since 2025 reforms.
- 5.DOTAS regime: Requires disclosure of notifiable stamp duty avoidance schemes. Non-disclosure attracts significant penalties.
- 6.Criminal investigation: Fraud Investigation Service can prosecute tax evasion cases, leading to imprisonment.
The Tower One Properties case (January 2026) is particularly significant. The Court of Appeal held that s75A applies more broadly than previously understood, catching arrangements that involve tax reduction as a purpose rather than requiring it to be the main purpose. This substantially widens HMRC's enforcement reach.
Impact of April 2025 Reforms
The April 2025 rate changes and January 2026 s75A broadening have fundamentally altered the avoidance/evasion landscape, increasing both incentives and enforcement risk.
| Factor | Before April 2025 | After April 2025 |
|---|---|---|
| Nil-rate band | £250,000 | £125,000 |
| Higher rates surcharge | 3% | 5% |
| Corporate rate (17% band) | 15% | 17% |
| s75A interpretation | Narrower (main purpose test) | Broadened (Jan 2026 Court of Appeal) |
| GAAR application | Active | More aggressively applied |
| Finance Bill 2026 | N/A | Proposes promotion prohibition |
| HMRC enforcement | Active | Significantly increased |
Key takeaway: Higher rates mean larger potential tax savings, creating stronger incentive for avoidance. HMRC has responded with intensified enforcement and broader anti-avoidance interpretation.
Penalties and Prosecution
The consequences of crossing the line from legitimate planning into aggressive avoidance or evasion are severe and escalating.
Legitimate Planning
- • No penalties
- • Full compliance
- • Professional certainty
- • HMRC accepts approach
Defeated Avoidance
- • Tax and interest due
- • Penalties up to 60%
- • Legal costs
- • Reputational damage
- • DOTAS penalties if not disclosed
Tax Evasion
- • Penalties up to 200%
- • Criminal prosecution
- • Up to 7 years imprisonment
- • Unlimited fines
- • Criminal record
- • Professional disqualification
Criminal Prosecution Risk
HMRC's Fraud Investigation Service actively prosecutes serious tax evasion. Recent prosecutions for stamp duty fraud have resulted in prison sentences exceeding 3 years and confiscation orders stripping defendants of assets.
Even participation in or facilitation of evasion by advisers can lead to criminal charges under the Criminal Finances Act 2017. The £100,000 threshold for corporate offence is easily exceeded in stamp duty cases.
How to Stay Compliant
Protecting yourself from avoidance or evasion allegations requires proactive compliance and professional advice where transactions are complex.
Best Practice Checklist
- Accurate returns: Ensure SDLT returns reflect true consideration and transaction structure. Never understate purchase price.
- Complete disclosure: Declare all payments and arrangements forming part of consideration, including side agreements.
- Commercial substance: Ensure transactions have genuine commercial purpose beyond tax reduction.
- Professional advice: Obtain specialist stamp duty advice for complex structures or high-value transactions.
- DOTAS compliance: If advised to enter scheme, verify whether DOTAS disclosure required and check scheme reference number.
- Document retention: Keep complete transaction records including emails, drafts, and advice for 6+ years.
- Red flag awareness: Be suspicious of schemes promising large tax savings with no commercial downside or requiring complex structures.
- Post-2025 caution: Recognize that higher rates have increased HMRC scrutiny. Arrangements acceptable pre-2025 may now face challenge.
When to Seek Professional Advice
Certain transactions require specialist stamp duty advice to ensure compliance and avoid inadvertent avoidance or evasion:
- •High-value purchases: Properties over £1 million where tax at stake is substantial
- •Corporate acquisitions: Share purchases, partnership transactions, or corporate restructurings
- •Mixed-use properties: Where residential/non-residential classification affects rates significantly
- •Multiple dwellings: Claiming Multiple Dwellings Relief requires careful analysis
- •Connected party transactions: Sales to family, companies you control, or linked entities
- •Development transactions: Purchases with future development potential or overage arrangements
- •Cross-border elements: Non-UK buyers, offshore structures, or foreign currency consideration
- •Promoter-sold schemes: Any arrangement marketed as reducing stamp duty liability
- •HMRC enquiries: If HMRC opens enquiry into your return, obtain immediate specialist advice
Specialist stamp duty advisers can provide certainty, ensure compliance, and defend positions if challenged. The cost of advice is typically small compared to tax at stake and risk of penalties.
Need Professional Stamp Duty Advice?
If you're considering complex arrangements or facing HMRC enquiry, consult a specialist stamp duty adviser to ensure full compliance and avoid penalties.
Calculate Your Stamp DutyEmma Richardson, MRICS
Chartered Surveyor & Property Tax Specialist
Emma Richardson is a RICS-qualified Chartered Surveyor with over 12 years of experience in UK property taxation. She founded Stamp Duty Calculator to help buyers understand the complex world of property transaction taxes.