Taxation – Stamp duty land tax – Repayment – First-tier Tribunal holding that respondent taxpayer entitled to reclaim stamp duty land tax (SDLT) in relation to interest in house – Appellant commissioners appealing – Whether amendment to SDLT return to claim repayment, when contract rescinded or annulled after substantially performed, could take place outside usual time limit – Appeal allowed
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. In this case, a charge to tax arose at that time. However, under section 44(9), if the contract “is (to any extent) afterwards rescinded or annulled, or is for any other reason not carried into effect,” the tax had to be repaid by the appellant commissioners.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 respondent 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 The contract was (by way of novation) rescinded or annulled or otherwise not carried into effect after the expiry of the normal 12-month time-limit for amending the return relevant to the original chargeable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) allowed an amendment to the respondent’s SDLT return on the basis that it could be amended more than 12 months after the filing date if it was “otherwise provided” in the legislation: Section 44(9) of the 2003 Act was a provision which “otherwise provided” that an amendment was allowed beyond those time limits, as it allowed an amendment to an SDLT return where a contract was rescinded, annulled or for any other reason not carried out. The novation of the lease met that condition. The appellants appealed.
Held: The appeal was allowed.
(1) The FTT erred in assuming that the words “except as otherwise provided” in para 6(3) of schedule 10 had to refer back to “afterwards” in section 44(9). The true question was whether, properly understood, section 44(9) could be read in the way contended for by the respondent as providing for no time limit for amending a return.
The FTT had focused on the fact that the word “afterwards” was used in a temporal sense and that, as the provision would also make sense if the word was omitted, it must have been intended to achieve something. It followed that that was, in itself, enough to constitute “other provision” displacing the normal time-limit in para 6(3) of schedule 10.
As a matter of ordinary English, the use of the word “afterwards” in section 44(9) was usefully underlining (to aid comprehension) the fact that one event was following on from another. In that context, the inclusion of the word “afterwards” was simply indicating that the contract which had been identified was, later or subsequently or afterwards, rescinded or annulled.
The grammatical structure of section 44(9) also made it clear that no weight was being attached to “afterwards”. It provided that “the contract is (to any extent) afterwards rescinded or annulled, or is for any other reason not carried into effect”. Therefore, the subsection read as referring to a case where “the contract […] is for any other reason not carried into effect”.
(2) The true focus was on whether the inclusion of the first sentence in section 44(9) had given the respondent a right, without time-limit, to require a repayment to him of the SDLT. That sentence set out a case where one event had happened after another and placed a duty on the appellant commissioners to repay the SDLT previously paid. It clearly did not contain a further requirement for the second event to happen within a certain period of time from the occurrence of the first event.
The inclusion of the second sentence in section 44(9) produced the result that the subsequent act (the rescission or annulment of the contract or its not being carried into effect) had to take place within a certain period of time. It provided that the duty on the commissioners to make the repayment of SDLT required a claim to be made to them by the taxpayer and required the claim to be made by way of amendment of the SDLT return.
In the circumstances of this appeal, it was the respondent alone who was in possession of the property for a significant period of time. He then entered into arrangements where the contracted-out lease was novated in favour of his brother, a different taxpayer who then proceeded to enjoy the property. The initial lease was simply assigned for no consideration by the respondent to his brother. But the mechanism chosen in relation to the contracted-out lease was different, and the effect was for a new contract to come into being with the respondent’s brother as a party to the new contract.
(3) By section 44(9), parliament was intending to strike a balance between the need to bear down on avoidance and the need to relieve more innocent transactions in a simple way. One way of achieving that objective was to condition the relief by reference to the period during which the contract had been substantially performed. An effective period of 13 months (30 days from the effective date of the transaction plus 12 months for amending the return) was consistent with producing a fair system which limited the scope for avoidance and was simple to operate.
Section 44(9) was intended to operate as part of a self-assessment system under which the obligation fell on the taxpayer to complete a return and include a self-assessment to tax in the return. There were strict time limits for delivering returns and, at the relevant time, a taxpayer had 30 days after the effective date of the transaction to submit one (since reduce to 14 days).
Accordingly, an amendment to an SDLT return to claim a repayment when a contract was rescinded or annulled after it had been substantially performed, within section 44(9), had to take place within the usual time limit of 12 months from filing the return.
Christopher McNall (instructed by the General Counsel and Solicitor of HM Revenue and Customs) appeared for the appellants; Michael Thomas (instructed by Blick Rothenberg) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Commissioners of HM Revenue and Customs v Candy
