Stamp duty land tax – Land transaction – Subsale – Sections 44, 45 and paragraph 10 of schedule 15 to the Finance Act 2003 – Limited partnership acquiring land through scheme structured to mitigate SDLT charge – First-tier Tribunal deciding acquisition structure succeeded in reducing tax payable on acquisition – Whether tribunal erring in law – Appeal dismissed
In July 2005 a company incorporated in the British Virgin Islands (the company) acquired an occupational leasehold interest in commercial premises in London, W1. On 24 October 2006, the company entered into a contract with the owner of the head leasehold interest in the property (L&G), to buy that interest for £65.1m. Completion was fixed for 4 December 2006. A scheme was devised with the object of reducing the SDLT liability on that transaction to nil. That involved the establishment on 29 November 2006 of a limited partnership under BVI law (the respondent) and a contract of subsale entered into on 30 November 2006 between the company as vendor and the two general partners of the respondent acting on its behalf as purchaser, whereby the company agreed to sell on the head leasehold interest in the property to the respondent for the same price (£65.1m), without payment of a deposit, with completion on the same day. The respondent was structured in such a way that one of the partners, namely the company, was entitled to 98% of its income. The other four partners were all connected with the company for the purposes of the partnership provisions relating to SDLT contained in schedule 15 to the Finance Act 2003. The subsale was to be completed by a separate transfer from the company to the respondent.
The respondent sought to take advantage of the provisions relating to contracts, conveyances and subsales in sections 44 and 45 of the 2003 Act to ensure that the subsale by the company to the respondent fell within schedule 15, paragraph 10 which applied where a partner transferred a chargeable interest to the partnership and left out of charge so much of that value as was referable to the beneficial interests in partnership income of the transferor and persons connected with the transferor.
The appellant commissioners issued a closure notice under paragraph 23 of Schedule 10 to the Finance Act 2003 amending the respondent’s land transaction return in respect of the acquisition of the headlease by increasing the chargeable consideration for the transaction from nil to £65.1m. The taxpayer appealed, arguing that the effect of the rules in section 45 was that the transfer from L&G to the company was ignored and that SDLT was payable only on the respondent’s acquisition. The consideration for that acquisition was to be treated as nil, giving rise to no SDLT liability. The First-tier Tax Tribunal (FTT) allowed that appeal: [2011] TC 001012; [2011] UKFTT 138 (TC). The appellant commissioners appealed.
Held: The appeal was dismissed.
SDLT was a tax on land transactions, giving rise to a problem as to how to deal with the standard procedure for the sale of land whereby a contract was followed on a later date by a conveyance on completion. Under section 44 of the 2003 Act, the purchaser was not regarded as entering into a land transaction when the contract was made, so no charge to tax could arise at that stage. When the transaction was completed, the contract and the transaction effected on completion were rolled together and treated as parts of a single land transaction the effective date of which was the date of completion. Accordingly, a charge to tax was triggered and the consideration given by the purchaser at each stage of the composite single transaction was aggregated and brought into account. There was a single charge to tax on completion of the contract, and the chargeable consideration was the full purchase price, including any amount paid as a deposit on exchange of contracts.
Section 45(3) then provided that the substantial performance or completion of the original contract at the same time as, and in connection with, the substantial performance or completion of the secondary contract should be disregarded. The charge under the partly fictional secondary contract replaced the charge which would otherwise arise under the actual original contract, but only if both the original and the secondary contracts were completed (or substantially performed) at the same time as, and in connection with, each other. Schedule 15, paragraph 10 was part of the overall statutory scheme and had to be read, construed and applied in the context of the SDLT legislation as a whole, and not be treated as if it formed some sort of legislative island all by itself.
The appellants’ core argument had been that the original vendor could not be regarded as the vendor or transferor of the headlease to the taxpayer, whether under the actual subsale or under the deemed secondary contract, because of the disregards in section 44(2) and 45(3). However, section 44(2) was not framed as a full-blown deeming provision, but simply said that a person was not regarded as entering into a land transaction “by reason of entering into the contract”. As regards section 45(3) and the deemed secondary contract, the disregard upon which the appellants relied came into play only if and when there was simultaneous completion of the secondary contract and the original contract. The disregard presupposed that the secondary contract was already in place and that it had been completed. The purpose of the disregard of the completion of the original contract was to ensure that there was only one charge to SDLT if the original contract and the secondary contract were completed at the same time. There were no grounds for giving it a wider or more general effect.
On a proper construction of the relevant statutory provisions and their application to the undisputed facts, if the respondent was to be regarded as the vendor under the secondary contract, schedule 15, paragraph 10(1)(a) applied, and the chargeable consideration for the sub-sale was nil.
Malcolm Gammie QC (instructed by HMRC Solicitors) appeared for the appellants; Roger Thomas (instructed by Olswang LLP) appeared for the respondent.
Eileen O’Grady, barrister
