Taxation – Stamp duty land tax – Appellant purchasing property from connected person – Respondent commissioners assessing transaction to stamp duty land tax – First-tier Tribunal (FTT) upholding decision – Appellant appealing – Whether market value provisions of section 53 of Finance Act 2003 took priority over annuity deeming rule in connected party transaction where consideration for disposal was annuity – Appeal dismissed
The appellant company purchased a residential property at 8 Old Railway Yard, Burnham from F, who controlled the appellant. There was no written contract for the purchase. The Land Registry transfer of title deed (Form TR1) showed the appellant as transferee and F as transferor. The market value of the property was £1.2 million. The form showed the consideration received by the transferor as nil, but other receipts as “an annuity of £3,000 per annum”.
The First-tier Tribunal (FTT) found that it was more likely than not that the consideration for the acquisition of the property was an annuity contract. The land transaction return declared that the effective date of the transaction was 31 March 2016. The consideration payable was stated as £36,000, being 12 annuity payments of £3,000 each, which fell below the minimum value in respect of which stamp duty land tax (SDLT) was payable.
The respondent commissioners opened an enquiry into the return under para 12 of schedule 10 to the Finance Act 2003. They subsequently issued a closure notice under para 23, amending the return and assessing the land transaction to SDLT in the sum of £180,000. The issue of the closure notice was upheld following a statutory review.
Where the purchaser was a company connected with the seller, section 53 of the 2003 Act required tax to be paid on the market value of the interest acquired, if that was higher than the actual consideration. The FTT concluded that the transfer of the property to the appellant was caught by section 53 which applied where a property was transferred to a connected company. The tribunal decided that section 53 took precedence over the special rule in section 52 about quantifying the chargeable consideration where the consideration consisted of an annuity. The appellant appealed.
Held: The appeal was dismissed.
(1) The appeal raised the single question whether, where the facts relating to a land transfer fell within section 53(1), that section did not apply because the consideration for the transfer was an annuity within section 52(1) and the chargeable consideration therefore had to be limited to twelve annual payments.
The obvious and unambiguous purpose of section 53 was to eliminate the possible influence of connection as between vendor and purchaser in respect of determining and valuing chargeable consideration. Parliament had not chosen to impose a minimum chargeable consideration of the land’s market value in every situation where such influence could arise by virtue of vendor and purchaser being connected persons. It had chosen to target specific situations, for example, where an attempt was made to minimise or avoid SDLT on a future transfer of the land by enveloping the land in a company controlled by the vendor for minimal or no consideration.
A purposive construction required the tribunal to take into account that section 52 was a computational provision and section 53 was an anti-avoidance provision; each section applied in the factual situations described within it. Section 53 did not apply in every situation. It was subject by section 53(5) to the exclusions in section 54.
(2) Section 52 applied to “so much of the chargeable consideration” as consisted of an annuity of the stated type. Where it applied, it limited the consideration “to be taken into account” to twelve annual payments. Turning to section 53, it was critical to note that where it applied it did not operate simply by substituting the market value of the transferred property for the actual consideration given. Rather, it provided that the chargeable consideration should be taken to be not less than the market value of the property.
Section 53 required a comparison of two calculations. The first was the chargeable consideration calculated under all the applicable provisions of the SDLT code, ignoring section 53. The second was the market value of the property. The effect of section 53(1A) was that the chargeable consideration was taken to be the greater of those two figures. In considering the relationship between sections 52 and 53, section 53 needed section 52 because it was necessary to compare the market value of the property and the chargeable consideration, taking into account that, as regards so much of the consideration as consisted of an annuity, the computational provisions of section 52 would apply to limit the consideration to twelve annual payments. The computational purpose of section 52 was not frustrated because it applied to calculate the amount to be taken into account in the comparison required by section 53. The anti-avoidance purpose of section 53 was not frustrated because it applied a market value minimum in the factual situation intended and its application was not excluded by the choice of a particular form of consideration. The result was that both provisions applied.
(3) In terms of the drafting of section 53, it was apparent that where the draftsman intended the application of the section to be limited, that was achieved in one of two ways. The relevant exclusions might be set out specifically, as in section 54, as applied by section 53(5). Alternatively, the relevant exclusions might be described generically: section 53(4) provided that section 53 had effect “subject to any other provision affording exemption or relief from stamp duty land tax”.
A limitation to section 53 arising by reference to section 52 fell within neither category. Before the FTT, it was accepted by both parties that section 52 was not a provision affording exemption or relief from SDLT. Exemptions and reliefs in the SDLT code were framed very differently from section 52. Moreover, the “twelve annual payments” calculation could, depending on the facts, result in more SDLT being paid than a calculation under normal SDLT principles. The construction proposed by the appellant would frustrate the clear purpose of section 53. There was no good reason why the choice of a particular form of consideration which had its own computational rule should produce that result, bearing in mind that section 52 was not to be construed as a legislative island by itself. The FTT had reached the right decision as to the application of section 53.
Julian Hickey (instructed by Levy & Levy) appeared for the appellant; Elizabeth Wilson (instructed by General Counsel and Solicitor to HM Revenue and Customs) appeared for the respondents.
Eileen O’Grady, barrister
