The DOTAS regime requires a "promoter" of certain types of tax avoidance scheme to disclose the scheme to HMRC. This information enables HMRC to introduce legislation to block schemes that they believe are effective.
Before this month, the DOTAS regime only applied to SDLT schemes for non-residential property with a market value of at least £5 million and schemes for residential property with a market value of at least £1 million. Now the scheme covers residential and commercial property of any value.
In addition certain schemes which existed before 1 April 2010 will also have to be disclosed once more so that HMRC can find out who is using them. Schemes do not need to be disclosed if they are the same or substantially the same as arrangements made available by any person before 1st April 2010. However, from 1 November this "grandfathering" rule does not apply to certain schemes involving transfers of rights, commonly referred to as sub-sales.
A "transfer of rights" is a sub-sale, assignment or other transaction under which a contract for a land transaction is not completed and, instead, a further transaction is entered into by the original buyer with a third party under which the third party can call for a direct conveyance from the original seller.
Under the transfer of rights rules, the original contract is ignored for SDLT purposes and there is, instead, deemed to be a contract for a land transaction between the original seller and the third party, and SDLT is paid on this transaction.
The transfer of rights rules have been used in SDLT avoidance schemes and so the grandfathering rules will be disapplied where the second contract involves a distribution in specie; an acquisition by a partnership; an acquisition by a settlement; an element of gift or transfer at an undervalue; the grant of an option or an assignment or novation.
When a scheme is disclosed under the DOTAS rules, HMRC may allocate a scheme reference number (SRN) to the promoter, who must issue the number to the client. Since 1 January 2011, promoters have to provide HMRC with periodic information about clients to whom they become required to issue a SRN.
Before 1 April 2010 SRNs were not issued to promoters and HMRC did not obtain details of those using disclosed arrangements.
The reason for disapplying the grandfathering rules is to oblige the promoter to disclose these schemes one more time so that SRNs can be issued and promoters will need to disclose details of clients who have used the scheme.
When the rules were published in draft in July, tax expert John Christian of Pinsent Masons, the law firm behind Out-Law.com, warned that the updated rules could catch some legitimate structures.
"The new rules focus on extending disclosure in relation to structures involving transfers of rights and sub-sales," he said. "As well as catching tax planning schemes, these updated rules could catch some structures involving sub-sales which have no avoidance motive. Development structures often use these provisions for commercial reasons and taxpayers will need to become aware where the extended disclosure rules may apply."