Sale of land – Stamp duty land tax – Subsale – Finance Act 2003 – Company purchasing property and effecting subsale to respondent partnership by separate transfer on same date with a view to avoiding SDLT – Whether entitled to benefit from provisions of para 10 of Schedule 15 to 2003 Act concerning transfer of chargeable asset by partner to partnership – Whether proper application of sections 44 and 45 precluding that outcome – Appellant commissioners maintaining SDLT payable – Appeal allowed
In October 2006, a company contracted to purchase the head leasehold interest in commercial premises in London W1 for £65.1m, with completion to take place in December 2006. The company devised a scheme to avoid paying the £2.6m stamp duty land tax (SDLT) that would otherwise be payable on that transaction under the Finance Act 2003. Pursuant to the scheme, it contracted to effect a subsale of the property for the same price to the respondent, a partnership incorporated for that purpose in November 2006, with completion to take place on the same day as the company’s own purchase but by a separate transfer. The respondent was structured so that the company, as one of the partners, was entitled to 98% of the partnership income. The other partners were all connected with the company and one of them was not a body corporate. The aim of the scheme was to benefit from the provisions of para 10 of Schedule 15 to the 2003 Act, concerning the transfer of a chargeable asset by a partner to the partnership, so as to reduce the SLDT to nil by leaving out of charge so much of the market value of the property as was referable to the beneficial interests in the partnership income of the transferor and persons connected with it.
The appellants took the view that the scheme was ineffective and that the respondent was liable to pay SDLT on its acquisition of the property. It was common ground that, on an application of the detailed provisions of sections 44 and 45 of the 2003 Act, no SDLT had been incurred on the purchase of the property by the company. The appellants’ position was that section 45(3), when applied to the subsale, resulted in a deemed secondary contract for a land transaction on which the respondent was the purchaser and the consideration was £65.1m, and on which £2.6m in SDLT was payable when that transaction was completed.
Those contentions were rejected by the first-tier tribunal and the Upper Tribunal (UT), both of which found in favour of the respondent: see [2012] UKUT 399 (TCC); [2012] PLSCS 238. The appellants appealed.
Held: The appeal was allowed.
Schedule 15 to the Act could not be regarded as setting out special provisions that overrode the general provisions of sections 44 and 45. Although Schedule 15 might be said to deal with special situations, namely dealings involving partnerships, so too did section 45, which dealt with subsales and similar transactions. There was no reason to prefer one over the other. Schedule 15 should therefore be read, construed and applied in the context of the SDLT legislation as a whole. The UT had given insufficient weight to section 44 of the 2003 Act, which was a key provision of the SDLT code applying generally to identify a land transaction or, in other words, what counted as the acquisition of a chargeable interest.
Given the way in which the parties had structured their transactions, it was not legitimate to ignore the reality of the contract by which the company acquired the property and that between the company and the respondent partnership, or the transfers that amounted to completion of each of those contracts. There was no inconsistency between accepting that the company was entitled to an equitable interest in land in the real world and also concluding that its equitable interest did not count as a chargeable interest for the purposes of SDLT while it was in the company’s hands.
The secondary contract for which section 45(3) provided was a contract under which the company was the transferor. However, contrary to the UT’s view, section 45 did not provide for the company to be regarded as the “vendor” under that contract, since a vendor was a defined term meaning a person disposing of a chargeable interest. The concept of transferor did not entail that the transferor had a chargeable interest in the world of SDLT, as opposed to an equitable interest in the real world. The company had acquired no chargeable interest either on entering into the purchase contract, since section 44(2) provided that it was not to be regarded as having entered into a land transaction at that time, or on completion of that contract, since section 45 required that completion to be disregarded. Consequently, there was no point at which the company could have acquired a chargeable interest.
In contrast with the general scheme of the SDLT legislation, para 10 of Schedule 15 looked at matters from the point of view of the transferor. It was concerned not with the acquisition of a chargeable interest by a partnership so much as with the transfer of such an interest by a partner. A partner could not transfer a chargeable interest unless it had one to transfer. The company had never acquired a chargeable interest. The interest in land that it had transferred to the respondent was not a chargeable interest in the company’s hands. It was, however, a chargeable interest in the hands of the respondent partnership. When the contract between the company and the respondent was completed, section 44(3) applied to the latter’s acquisition of a chargeable interest, representing the whole equitable interest in the headlease, such that the effective date of the land transaction was the date of completion of that contract. The respondent was liable to pay SDLT on the acquisition of that interest.
Malcolm Gammie QC (instructed by the legal department of HM Revenue and Customs) appeared for the appellants; Roger Thomas (instructed by Olswang LLP) appeared for the respondent.
Sally Dobson, barrister
