We have previously reported on earlier court decisions considering certain aspects of the SDLT legislation.
Since then a number of further decisions have been issued. The first two: The Pollen Estate Trustee Company v HMRC and HMRC v DV3 RS Limited Partnership are decisions of the Court of Appeal, and the final one, Project Blue Limited v HMRC that of the First-Tier Tribunal.
The Pollen Estate Case
This case concerns the availability of relief from SDLT where the purchaser is a charity.
In this case the charity was a joint purchaser with a non-charity. In the Upper Tribunal it was held that as a non-charity had an interest in the property the charity was not entitled to relief on its share of the purchase. This was on the technical basis that for the relief to be available the purchaser had to be a charity. As there were two purchasers; one a charity and one a non-charity and because they were each buying an undivided equitable share in the property, the relief could not apply.
The Court of Appeal, taking the view that the policy of the legislation was to grant charities relief from SDLT where the requisite conditions were satisfied, took the view that the exemption should apply to that proportion of the beneficial interest that is attributable to the undivided share held by the charity for qualifying charitable purposes.
This would seem to be a sensible result in the circumstances. It also has the benefit of meaning that where charities are acquiring property with a non-charity, it is not necessary to divide up the transaction artificially into two separate transactions so that the charity can claim relief on its proportion.
As a result of this decision HMRC has invited affected charities to submit claims for overpaid SDLT.
The DV3 Case
This case considered the availability of sub-sale relief in the context of a company entering into a contract to acquire a property and, on completion, transferring the property to a partnership in which it owned virtually the entire economic interest. This is one of a number of well-known SDLT planning structures which are now coming to court.
The result of the above arrangement as argued by the taxpayer was that, with the combination of sub-sale relief and the special rules applying to partnerships, there was little or no SDLT on the acquisition of the property. This structure was implemented before the mini anti-avoidance provision involving SDLT was enacted (see Project Blue below).
The Court of Appeal broadly adopted the analysis put forward by the Revenue. Its analysis was that, because the deeming provisions in the sub-sale legislation provided that the original contract between the vendor and the immediate purchaser (the purchasing company) was ignored for SDLT purposes, this meant that the purchasing company had no land interest which it could transfer to the partnership (thus availing itself of the special partnership rules).
For SDLT purposes the original vendor was treated as selling the land to the partnership, with the result that SDLT is payable by the partnership on the acquisition of the property.
This is yet another victory for the Revenue in its fight against so-called "abusive" SDLT schemes.
The Project Blue Case
This is the first time a court has considered the mini SDLT anti-avoidance provisions contained in s75A Finance Act 2003. This involved a complex series of steps, the intention of which was to avoid SDLT on the sale of Chelsea Barracks by the MOD to a Jersey resident company, Project Blue Limited (PBL) by using a combination of the sub-sale and alternative finance reliefs of the SDLT legislation.
Section 75A is widely drafted and applies where:
one person (V) disposes of a chargeable interest and another person (P) acquires it or a chargeable interest deriving from it;
a number of transactions, including the disposal and acquisition, are involved in connection with the disposal and acquisition (scheme transactions); and
the SDLT payable in respect of the scheme transactions is less than the amount that would be payable on a notional transaction whereby P acquired V's chargeable interest
The Tribunal concluded that the MOD was V and PBL was P. It held that P must be a person who has avoided SDLT; this put a significant limitation on the power of HMRC so that HMRC cannot arbitrarily decide who is P.
In addition, the Tribunal made the following points:
for a step to be involved in connection with the transaction there had to be some form of participation in the steps taken and it requires more than simply being a party in a chain of transactions
in the Tribunal's view, section 75A does not require a tax avoidance motive to apply and disclosure under the tax avoidance disclosure rules was evidence of a tax avoidance motive
Under the legislation the higher of the amounts given or received by the vendor or purchaser is taken to be the chargeable consideration for SDLT purposes.
The net result is that the purchaser ended up paying another £11.2m in SDLT than if it had not implemented any tax planning in the first place.
Now that the Revenue has turned its resources to combating SDLT avoidance it is becoming an increasingly hazardous undertaking for a tax-payer to participate in these sorts of schemes.