Sale of land – Stamp duty land tax – Alternative financing – Respondent purchasing freehold of land with assistance of bank under arrangement compliant with Sharia law – Financing arrangement involving onward sale of land to bank with leaseback and right to call for re-transfer at future date – Upper Tribunal rejecting respondent’s argument that sub-sale to bank not exempt under section 71A of Finance Act 2003 – Court of Appeal allowing respondent’s appeal – Appellants appealing – Whether respondent liable for stamp duty land tax on purchase of freehold – Whether respondent entitled to exemption under section 71A – Whether anti-avoidance provisions of section 75A of 2003 Act applying – Appeal allowed
In January 2008, the Ministry of Defence (MoD) disposed of its freehold interest in Chelsea Barracks, London SW1, by a sale to the respondent for £959m pursuant to an earlier contract. The respondent’s purchase was funded by a Qatari bank. To make the financing arrangements comply with Sharia law, a series of transactions were put in place which involved an onward sale of the land to the bank on the same date for £1.25bn, with a leaseback of the land and the grant of put and call options designed to lead to the later re-transfer of the land to the respondent.
The respondent claimed that there was no liability to stamp duty land tax (SDLT) because of the “sub-sale relief” provision in section 45(3) of the Finance Act 2003. The bank claimed “alternative property finance relief” under section 71A of the 2003 Act. Section 71A relief was also claimed in relation to the lease by the bank to the respondent. Consequently, the parties to the scheme transactions claimed that there was no liability to SDLT. The appellant commissioners disagreed and issued a closure notice amending the amount of SDLT due to £38.36m (subsequently increased to £50m based on the total consideration the bank agreed to provide to the respondent). The FTT accepted that one of the scheme transactions under section 75A(1)(b) of the 2003 Act must have been the disposal to and acquisition of the site by the bank which meant that the consideration for the notional transaction under section 75(A)(5) was £1.25bn resulting in a charge to SDLT of £50m.
On appeal to the Upper Tribunal, the respondent argued that the bank was not entitled to section 71A relief because MoD was the vendor of the barracks in terms of section 71A(2) but the tribunal concluded that the respondent was the vendor: [2014] UKUT 564 (TCC); [2015] PLSCS 68. The Court of Appeal found, amongst other things, that the vendor was MoD, and not the respondent, so that section 71A(2) did not exempt the bank from charge. The respondent could not be the vendor due to section 45(3) which disregarded the contract between MoD and the respondent. Accordingly, the respondent had no chargeable interest so as to be regarded as entering into the sub-sale contract with the bank: [2016] EWCA Civ 485; [2016] EGLR 40. The appellants appealed to the Supreme Court. The principal question was whether the respondent was due to pay SDLT of £50m on its purchase from MoD.
Held: The appeal was allowed (Lord Briggs dissenting).
(1) The Upper Tribunal had correctly concluded that the respondent was the “vendor” under section 71A(2) and therefore that the bank’s purchase of the barracks from respondent was exempt from SDLT. There was nothing within section 71A to suggest that the exemption in section 71A(2) would not apply when the sale by the customer to the financial institution was a sub-sale which took place contemporaneously and in connection with the customer’s purchase of the major interest in land. The disregard in the tailpiece of section 45(3) had no bearing on the operation of section 71A(2).
(2) In the present case, apart from the general and broadly drafted anti-avoidance provision in section 75A, the combination of the sub-sale relief under section 45(2) and (3) and the exemption under section 71A(2) relieved the sale by the MoD to the respondent and exempted the sale by the respondent to the bank from a charge to SDLT. Section 75A was enacted by Parliament to close such a lacuna. In this case, the party referred to as “V” in section 75A was the MoD. Looking at section 75 as a whole, and taking a purposive approach to interpretation, “P” as referred to in section 75A was the respondent which did not obtain a chargeable interest on 31 January 2008 because the contract between it and the MoD fell to be disregarded under section 45(3). The respondent acquired its chargeable leasehold interest, following the sub-sale to the bank and the lease back to the respondent. Those transactions were “involved in connection with” the disposal by the MoD of its chargeable interest: section 75A(1)(b).
(3) Section 75A(1)(c) required that the sum of the amounts of SDLT payable in respect of the scheme transactions (in this case £0) was less than the amount that would be payable on a notional land transaction effecting the acquisition of V’s chargeable interest by P on its disposal by V. Here, the relevant notional land transaction involved the respondent acquiring the MoD’s interest in the barracks. Section 75A(5) provided that the chargeable consideration on the notional transaction was the largest amount (or aggregate amount) given by any one person for the scheme transactions. The appellants had correctly asserted that the relevant sum was £1.25bn (the purchase price which the bank contracted to pay to the respondent). SDLT due thereon (chargeable at 4% on that figure) was £50m, subject to the respondent’s right to make a claim under section 80 of the 2003 Act.
(4) Section 75B did not assist the respondent since it operated by excluding incidental transactions from the calculation of the chargeable consideration on the notional transaction for the purposes of section 75A(5). Section 75B(2) and (6) supported the conclusion that both the sub-sale to the bank and the grant by the bank of the lease to the respondent were included in the transactions which transferred the chargeable interest from V to P for the purposes of section 75A(5). Therefore, the £1.25 billion consideration which the bank contracted to pay to the respondent was the relevant consideration under section 75A(5)(a).
Malcolm Gammie QC and Hui Ling McCarthy (instructed by the legal department of HM Revenue and Customs) appeared for the appellants. Roger Thomas QC (instructed by Clifford Chance LLP) appeared for the respondent.
Eileen O’Grady, barrister
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