Taxation – Stamp duty land tax – Repayment – First-tier Tribunal holding appellant taxpayer entitled to reclaim stamp duty land tax (SDLT) in relation to interest in house – Upper Tribunal allowing respondent commissioners’ appeal – Appellant appealing — Whether amendment to SDLT return to claim repayment, when contract rescinded or annulled after substantially performed, could take place outside usual time limit – Appeal dismissed
Section 44 of the Finance Act 2003 imposed a charge to stamp duty land tax (SDLT) where substantial performance of a contract took place prior to completion. However, under section 44(9), if the contract “is (to any extent) afterwards rescinded or annulled, or is for any other reason not carried into effect,” the tax had to be repaid by the respondent commissioners. The repayment had to be claimed by amendment of the relevant SDLT return.
Paragraph 6(3) of schedule 10 to the 2003 Act imposed a time-limit of 12 months in which an SDLT return could be amended with the time running from the filing date for the return. But that strict time-limit was subject to an exception if or where another (unspecified) provision had “otherwise provided”.
The appellant had entered into two separate contracts to purchase interests in a property known as Gordon House, a substantial Georgian House in the grounds of the Royal Hospital, Chelsea, London. The contract was (by way of novation) rescinded or annulled or otherwise not carried into effect after the expiry of the normal 12-month time-limit for amending the return relevant to the original chargeable transaction.
The First-tier Tribunal (FTT) held that the claim for repayment under section 44(9) could be made at any time and was not therefore out of time. The Upper Tribunal reversed that decision, holding that the appellant’s claim for repayment was not made within the 12-month period for amendment provided for by paragraph 6(3) and was accordingly out of time. Since there was no discretion afforded by the statutory scheme to extend time, the claim for repayment failed: [2021] UKUT 170 (LC); [2021] PLSCS 136. The appellant appealed.
Held: The appeal was dismissed.
(1) It was well-established that the court’s task was to ascertain and give effect to the meaning of the words used by parliament. External aids to interpretation played a secondary role. Explanatory notes prepared under the authority of parliament might be considered on that basis, particularly where they cast light on the purpose of the particular statutory provision in question: R (Quintavalle) v Secretary of State for Health [2003] UKHL 13; [2003] 2 AC 687 followed.
At least one of the purposes of section 44 of the 2003 Act was to deal with an avoidance technique known as “resting on contract” that was prevalent under stamp duty, where a person acquired the beneficial ownership of land by performing the obligations under the sale contract without formally completing the contract. Under the stamp duty regime, so long as a transfer was not executed, no stamp duty would be payable.
(2) Section 44(4) introduced the concept of “substantial performance” as the means of preventing resting on contract schemes from having the effect of deferring the tax point for the charge to SDLT on a potentially indefinite basis.
However, it was clear from section 44(8) and (9), in particular, that parliament recognised the potential for section 44(4) to operate unfairly to taxpayers charged to SDLT on substantial performance without completion of the contract. Section 44(8) dealt with a case where, following substantial performance without completion, subsequent completion of the contract did occur, but further consideration was payable. It required the completion to be a notifiable transaction even if no further SDLT was payable ((8)(a)); and made clear that tax was chargeable on the latter transaction only to the extent that it exceeded the tax already chargeable on the contract ((8)(b)).
(3) Section 44(9) dealt with the case where the contract was never completed: either because it ended by recission or some form of declaration of invalidity (annulment), or because it was for any other reason not carried into effect.
The first sentence of section 44(9) afforded a taxpayer an unqualified, substantive right to repayment of SDLT, while the second sentence provided the process for enforcing that right, making it clear that repayment had to be claimed by amendment of the land transaction return.
There was nothing inconsistent in parliament providing a right to reclaim tax paid as a safeguard for innocent taxpayers caught by the widely worded charge in section 44(4), but at the same time making that right subject to clear procedural rules, including time limits on the right to reclaim payment. It was of the essence of a self-assessment system that tax effects could be undone by administrative failure and merely meeting the substantive conditions for the grant of a relief was rarely enough to secure that a taxpayer received the relief in question.
(4) In the case of section 44(9), a balance between the competing objectives of preventing tax avoidance on the one hand, and relieving innocent transactions caught by section 44(4) on the other, was clearly intended by parliament. Since the longer the period of substantial performance lasted without completion of the contract, the more likely it was the purchaser would have obtained benefits under the contract in a way that justified maintaining the SDLT charge, it was rational to strike that balance with a time limit of 13 months for amending the return from the effective date of the transaction giving rise to substantial performance (12 months after the filing date).
(5) In effect, the appellant sub-sold the property to his brother for about £41m, although the transaction was structured as a novation under which the appellant’s remaining obligations were extinguished and replaced with new obligations undertaken by his brother. There was no reason why the appellant should be entitled to a refund in the circumstances. The absence of a time limit could permit arrangements where the enjoyment of the property could extend to lengthy periods during which the contract had been substantially performed. If SDLT could then be reclaimed when the ownership of the property changed hands, the system of SDLT would be undermined. That was the sort of risk that parliament would have wished to avoid. Accordingly, section 44(9) did not operate as an exception to the generally applicable time limit imposed by paragraph 6(3) for amending land transaction returns.
Michael Thomas and Quinlan Windle (instructed by Joelson LLP) appeared for the appellant; Imran Afzal (instructed by General Counsel and Solicitor for HMRC) appeared for the respondents.
Eileen O’Grady, barrister
Click here to read a transcript of Candy v Commissioners of HM Revenue and Customs
