There have been some interesting SDLT cases in the last few months.
First, the Court of Appeal (COA) has ruled that a charity can claim SDLT charities relief, even if it purchases a property jointly with a non-charity. For some time, HMRC had been asserting that in those circumstances SDLT charities relief would not be available because of the involvement of the non-charity joint purchaser (even though there was no policy reason for this position). However, the COA decided against HMRC and held that Parliament must have intended a charity to be able to benefit from the relief on joint purchases, though only to the extent of the charity’s interest in the acquired property – thereby giving rise to a partial SDLT charities relief.
Mills & Reeve acted for a consortium of educational institutions that had claimed SDLT charities relief on their joint purchases of residential properties with academic staff.
HMRC has now accepted the decision and will not be appealing to the Supreme Court. It has invited claims for repayment of overpaid SDLT by charities, so if you have paid SDLT on an acquisition based on HMRC’s prior views on joint purchases, please get in touch and we will be happy to provide further advice.
It will be interesting to see whether or not this decision is treated as affecting other SDLT reliefs. For example, would SDLT group relief be available to the extent that one of the two joint purchasers was a company in the same group as the vendor?
(The Pollen Estate Trustee Company Ltd (1) King's College London (2) v HMRC (2013))
Second, we have now received the judgment in the first tax case to consider the very wide ranging anti-avoidance SDLT provisions in section 75A Finance Act 2003.
This case involved the acquisition of the Chelsea Barracks in Central London, and £50 million of SDLT was at stake. The property was to be acquired by a property SPV and then (to comply with the requirements of Islamic financing) immediately sold to a financial institution and leased back to the SPV. The taxpayer argued that, due to a combination of SDLT subsale relief and Sharia finance relief, no SDLT was payable.
It was not clear in this instance whether or not the SDLT saving was effectively incidental, and merely resulted from a genuine desire to use Sharia-compliant financing for religious reasons, or whether SDLT avoidance formed part of the transaction structuring. However, despite repeated reassurances that s75A was an “anti-avoidance” provision and that it would only be invoked in cases of deliberate avoidance, HMRC saw no difficulty in seeking to apply section 75A in this case.
Essentially, section 75A applies if one person (V) disposes of an interest in land, another person (P) acquires it, and there are a number of “scheme transactions” involved in that process. If the SDLT that results from the aggregate scheme transactions is less than would be the case on a direct notional transfer of the land from V to P, HMRC is empowered to assess SDLT based on such a notional direct transfer. Importantly, s75A does not contain any motive test, so it is not necessary for SDLT avoidance to be planned before its (very wide) provisions can apply.
Here, the application of section 75A would allow HMRC to effectively ignore the combination of subsale and Islamic finance reliefs (as “scheme transactions”) and charge SDLT on a notional direct transfer of the property for £1.25 billion.
The Tribunal found in HMRC’s favour and held that the £50 million of SDLT was payable. In a detailed judgment, the most interesting points were:
- section 75A is intended to be an anti-avoidance provision (based on legislative headings, Explanatory Notes and HMRC guidance) – but Parliament intended it to be “a blunderbuss rather than a sniper’s rifle” so its width is deliberate.
- HMRC has no discretion as to whether or not to apply section 75A – so it cannot decide not to pursue transactions that it considers are commercially motivated (which was essentially its previously stated policy).
- Anti-avoidance motive is not relevant to the application of section 75A, as there is no “motive defence” (unlike some other anti-avoidance provisions).
It is hoped that the decision will be appealed, as the case (if left standing as good authority) means section 75A could apply to almost any transaction and HMRC has no authority to decide not to apply it, even if avoidance of tax is not intended.
(Project Blue Ltd v HMRC (2013) UKFTT 378 (TC))