Pollen Estate Trustee Co Ltd and another v Revenue and Customs Commissioners
Laws, McFarlane and Lewison LJJ
Stamp duty land tax – Charitable exemption – Para 1 of Schedule 8 to Finance Act 2003 – Acquisition of properties on bare trust – Some of beneficiaries charities and some not – Upper Tribunal holding that relief not available – Nature of chargeable interest acquired – Whether qualifying for exemption on proper construction of Schedule 8 – Appeal allowed
The first appellant was the trustee of a trust set up in 1812, the assets of which consisted of commercial property in London. Shares in the trust were freely alienable and there were more than 100 beneficiaries; some of them were charities and some were not. Between December 2006 and June 2008, the first appellant purchased four properties on behalf of the trust.
The second appellant was a university and also had charitable status. It operated a shared equity scheme by which it contributed to the acquisition of homes for its employees in return for an equitable interest in the property so acquired. It entered into such an arrangement in relation to a flat in London SE1; the employee in question executed a declaration of trust under which he held the flat 53.7% for himself 46.3% for the second appellant.
The respondents decided that the appellants were not entitled to relief from stamp duty land tax (SDLT) on those purchases. The appellants claimed to be entitled to the exemption in para 1 of Schedule 8 to the Finance Act 2003 in respect of property acquired by charities in furtherance of their charitable purposes or as an investment the profits from which were applied to such purposes.
The Upper Tribunal held that, on a proper construction of para 1 of Schedule 8, the appellants were not entitled to relief from SDLT since they had acquired a beneficial interest in the properties, rather than acquiring them as bare trustee for the charity. It held that, in such circumstances, the relevant chargeable interest for SDLT purposes was the entire equitable interest in the properties: see [2012] UKUT 277 (TCC); [2010] STC 2443.
On appeal, the appellants contended that: (i) the only relevant chargeable interests that they had acquired were their respective undivided shares in the relevant property, which were separate land transactions for SDLT purposes; and (ii) even if the UT had correctly identified the chargeable interest, it should have found that they were entitled to relief.
Held: The appeal was allowed.
(1) In identifying the relevant chargeable interest, the correct starting point was that, under the Law of Property Act 1925, a conveyance to two or more persons had to take effect as a trust of land. The first appellant and the second appellant’s employee had therefore acquired chargeable interests as bare trustees. The chargeable interest so acquired was the equitable estate in the land, which, as a result of the deeming provision in para 3 of Schedule 16, was deemed to be vested in the beneficiaries for SDLT purposes. Since the trustees acted collectively, the beneficiaries were also deemed to act collectively. The beneficiaries were therefore deemed to have acquired, collectively, the equitable estate in the land that the trustees had acquired. The appellants’ submission that the relevant chargeable interest was an undivided share in the property depended on a mistaken reading of the deeming provision as deeming the trustees to have acquired what the beneficiaries had acquired individually. That involved reading the deeming provision the wrong way round. Moreover, there was only one equitable estate, notwithstanding that it was held by a number of tenants in common in undivided shares. Where the share were undivided, the equitable estate was not divided. The acquisition of that equitable estate had come about as a result of a single land transaction for the purposes of section 43(1), involving a single bargain, a single purchase price for the whole estate, a single contract and a single transfer. Consequently, the “subject-matter” of the transaction, constituting the chargeable interest within the meaning of section 43(6), was the equitable estate that had been collectively acquired. The chargeable consideration on which SDLT was levied was the consideration given for that equitable estate. The UT had correctly identified the chargeable interest.
(2) However, the UT had erred in holding that the transactions did not attract relief under Schedule 8. A charity was entitled to relief from SDLT under para 1 of Schedule 8 if it acquired property in its own name as an investment with the intention of applying the whole, or the greater part of, the profits for its charitable purposes. Likewise, pursuant to para 3 of Schedule 16, a non-charity was entitled to such relief where it acquired property as bare trustee for a charity that intended to apply the profits in that way. By section 103 of the 2003 Act and section 6 of the Interpretation Act 1978, the same applied where the property was acquired by two or more charities jointly, or by a non-charity as bare trustee for them. Furthermore, if, by an independent transaction, a charity acquired an existing beneficial interest in property as an investment, intending to apply the profits for its charitable purposes, it was entitled to relief from SDLT even if its co-owners were not charities, since the only chargeable interest acquired was the beneficial interest itself. That being so, there was no valid policy reason for denying relief to a charity to the extent of its beneficial interest where it merely participated in a purchase with non-charities. There was no proper basis for distinguishing the acquisition of an existing undivided share by a charity from the acquisition of an undivided share as the result of a joint purchase with a non-charity. It would be capricious not to afford relief to a charity in the latter case. Although the beneficial owners of the property in question had to be viewed collectively, it was possible to determine the extent to which, collectively, they held the equitable estate for qualifying charitable purposes. The exemption could then apply to that extent; such an approach would not result in the whole transaction escaping SDLT. There was a sufficient “policy imperative” to justify reading para 1 of Schedule 8 in that way. Such an interpretation accorded with the proper approach to correcting drafting errors in statutes: Inco Europe Ltd v First Choice Distribution (a firm) [2000] 1 WLR 586 applied. The appellants were entitled to relief accordingly.
Jonathan Peacock QC (instructed by Eversheds LLP) appeared for the first appellant; Andrew Hitchmough QC and Zizhen Yang (instructed by Mills & Reeve LLP, of Cambridge) appeared for the second appellant; Amanda Tipples QC (instructed by the legal department of HM Revenue and Customs) appeared for the respondents.
Sally Dobson, barrister
Stamp duty land tax – Charitable exemption – Para 1 of Schedule 8 to Finance Act 2003 – Acquisition of properties on bare trust – Some of beneficiaries charities and some not – Upper Tribunal holding that relief not available – Nature of chargeable interest acquired – Whether qualifying for exemption on proper construction of Schedule 8 – Appeal allowedThe first appellant was the trustee of a trust set up in 1812, the assets of which consisted of commercial property in London. Shares in the trust were freely alienable and there were more than 100 beneficiaries; some of them were charities and some were not. Between December 2006 and June 2008, the first appellant purchased four properties on behalf of the trust.The second appellant was a university and also had charitable status. It operated a shared equity scheme by which it contributed to the acquisition of homes for its employees in return for an equitable interest in the property so acquired. It entered into such an arrangement in relation to a flat in London SE1; the employee in question executed a declaration of trust under which he held the flat 53.7% for himself 46.3% for the second appellant. The respondents decided that the appellants were not entitled to relief from stamp duty land tax (SDLT) on those purchases. The appellants claimed to be entitled to the exemption in para 1 of Schedule 8 to the Finance Act 2003 in respect of property acquired by charities in furtherance of their charitable purposes or as an investment the profits from which were applied to such purposes.The Upper Tribunal held that, on a proper construction of para 1 of Schedule 8, the appellants were not entitled to relief from SDLT since they had acquired a beneficial interest in the properties, rather than acquiring them as bare trustee for the charity. It held that, in such circumstances, the relevant chargeable interest for SDLT purposes was the entire equitable interest in the properties: see [2012] UKUT 277 (TCC); [2010] STC 2443.On appeal, the appellants contended that: (i) the only relevant chargeable interests that they had acquired were their respective undivided shares in the relevant property, which were separate land transactions for SDLT purposes; and (ii) even if the UT had correctly identified the chargeable interest, it should have found that they were entitled to relief.Held: The appeal was allowed. (1) In identifying the relevant chargeable interest, the correct starting point was that, under the Law of Property Act 1925, a conveyance to two or more persons had to take effect as a trust of land. The first appellant and the second appellant’s employee had therefore acquired chargeable interests as bare trustees. The chargeable interest so acquired was the equitable estate in the land, which, as a result of the deeming provision in para 3 of Schedule 16, was deemed to be vested in the beneficiaries for SDLT purposes. Since the trustees acted collectively, the beneficiaries were also deemed to act collectively. The beneficiaries were therefore deemed to have acquired, collectively, the equitable estate in the land that the trustees had acquired. The appellants’ submission that the relevant chargeable interest was an undivided share in the property depended on a mistaken reading of the deeming provision as deeming the trustees to have acquired what the beneficiaries had acquired individually. That involved reading the deeming provision the wrong way round. Moreover, there was only one equitable estate, notwithstanding that it was held by a number of tenants in common in undivided shares. Where the share were undivided, the equitable estate was not divided. The acquisition of that equitable estate had come about as a result of a single land transaction for the purposes of section 43(1), involving a single bargain, a single purchase price for the whole estate, a single contract and a single transfer. Consequently, the “subject-matter” of the transaction, constituting the chargeable interest within the meaning of section 43(6), was the equitable estate that had been collectively acquired. The chargeable consideration on which SDLT was levied was the consideration given for that equitable estate. The UT had correctly identified the chargeable interest.(2) However, the UT had erred in holding that the transactions did not attract relief under Schedule 8. A charity was entitled to relief from SDLT under para 1 of Schedule 8 if it acquired property in its own name as an investment with the intention of applying the whole, or the greater part of, the profits for its charitable purposes. Likewise, pursuant to para 3 of Schedule 16, a non-charity was entitled to such relief where it acquired property as bare trustee for a charity that intended to apply the profits in that way. By section 103 of the 2003 Act and section 6 of the Interpretation Act 1978, the same applied where the property was acquired by two or more charities jointly, or by a non-charity as bare trustee for them. Furthermore, if, by an independent transaction, a charity acquired an existing beneficial interest in property as an investment, intending to apply the profits for its charitable purposes, it was entitled to relief from SDLT even if its co-owners were not charities, since the only chargeable interest acquired was the beneficial interest itself. That being so, there was no valid policy reason for denying relief to a charity to the extent of its beneficial interest where it merely participated in a purchase with non-charities. There was no proper basis for distinguishing the acquisition of an existing undivided share by a charity from the acquisition of an undivided share as the result of a joint purchase with a non-charity. It would be capricious not to afford relief to a charity in the latter case. Although the beneficial owners of the property in question had to be viewed collectively, it was possible to determine the extent to which, collectively, they held the equitable estate for qualifying charitable purposes. The exemption could then apply to that extent; such an approach would not result in the whole transaction escaping SDLT. There was a sufficient “policy imperative” to justify reading para 1 of Schedule 8 in that way. Such an interpretation accorded with the proper approach to correcting drafting errors in statutes: Inco Europe Ltd v First Choice Distribution (a firm) [2000] 1 WLR 586 applied. The appellants were entitled to relief accordingly.Jonathan Peacock QC (instructed by Eversheds LLP) appeared for the first appellant; Andrew Hitchmough QC and Zizhen Yang (instructed by Mills & Reeve LLP, of Cambridge) appeared for the second appellant; Amanda Tipples QC (instructed by the legal department of HM Revenue and Customs) appeared for the respondents. Sally Dobson, barrister
