When identifying whether a stamp duty avoidance scheme is effective, it is necessary to look at the facts in the round. Where purchasers part with money in return for freehold property the mechanics by which they acquire it do not undermine that fact.
The Court of Appeal has dismissed a third appeal against HMRC’s finding that a scheme did not operate to avoid payment of stamp duty land tax in Brown and another v Commissioners of HM Revenue & Customs [2024] EWCA Civ 92; [2024] PLSCS 31.
The Browns formed an unlimited company, Earlswood, for which they each subscribed for 47,751 shares at £1 each, paying a total of £95,502. In July 2007, Earlswood contracted with Mr Hamm, an unconnected third party to purchase 9 Earlswood, Cobham, Surrey, for £955,000 paying a deposit of £95,000. Completion was set for 15 August 2007.
Earlier in August 2007, Earlswood issued to each of the Browns a further 432,250 £1 shares – increasing the nominal value of the shares to £960,002 – for promissory notes of £432,000 payable on 15 August 2007. On that date, Earlswood resolved to reduce its share capital from £960,002 to £2 by a distribution in specie of the property conditional on and simultaneous with the completion of the property purchase contract.
The balance of the money from the share subscriptions – raised by the Browns by mortgage – was used to complete the property purchase in Earlswood’s name. A transfer of the property was then executed by Earlswood to the Browns for nil consideration. The Browns were registered as proprietors of the property with a legal charge securing the mortgage in their name. Earlswood claimed relief from SDLT. The Browns made no land transaction return.
In August 2011, HMRC issued a notice of determination that the acquisition of the property was a chargeable transaction, that a land transaction return should have been made and requiring payment of £38,200 on the consideration of £955,000. The Browns appealed unsuccessfully to both the FTT and the Upper Tribunal (Lands Chamber) arguing that they did not provide the funding for Earlswood’s purchase of the property under the original transaction.
The Court of Appeal did not consider that this argument undermined the tribunal’s conclusion that SDLT was chargeable on the second transaction under section 45(3)(b)(i) of the 2003 Act because the sum was such consideration under the original contract between Mr Hamm and Earlswood as was referable to the subject matter of the secondary contract and provided indirectly by the Browns.
Louise Clark is a property law consultant and mediator
