Sale of land — Conveyance — Stamp duty — Sale of plot of land — Buyer agreeing to pay seller to erect a building thereon — Sale of land completed — Builder proceeding with building work — Whether price payable for post-completion building works to be brought into account when assessing stamp duty payable on conveyance — High Court holding that duty payable only on conveyance of land and building works so far as completed at time of transfer — Repayment of excess duty ordered
In May 1989 developers entered into a building contract with a builder, Tarmac Construction Ltd, for the carrying out of phase two of the Birmingham Business Park, Solihull Parkway, West Midlands. By October 1989 the work was proceeding, but there was still a long way to go. On October 18 1989 Prudential Assurance Co Ltd entered into three documents with the developers.
First, there was a sale agreement whereby Prudential agreed to buy the freehold property from the developers at the price of £2.5m. That was subject to and with the benefit of three subsisting agreements for leases, which the developers had already entered into by way of “pre-letting” of three units of the development.
Second, Prudential and the developers entered into a development agreement whereby, inter alia. Prudential agreed to provide the developers, up to a specified maximum, with the funds needed to complete the building works, by paying to the developers month by month the sums due from the developers to the builders. In calculating Prudential’s maximum liability for development costs the sum of £2.5m payable under the sale agreement was to be brought into account. The sale agreement and the development agreement were negotiated together and signed simultaneously. There was no intention on the part of either party that one agreement should be entered into unless both were entered into, and there was no practical possibility of one of the agreements being entered into unless both were entered into.
The third document entered into on October 18 was a deed of transfer by which the developers transferred to Prudential the land agreed to be sold. The consideration for the transfer was expressed to be £2.5m. The question arose as to the amount of stamp duty payable on that transfer. Was the price payable for the post-completion building works to be brought into account when assessing the stamp duty payable on the conveyance. Section 1 of the Stamp Act 1891 provided for the charging of stamp duty upon the instruments mentioned in the Schedule to the Act. The relevant heading stated: “Conveyance or Transfer on sale of any property …”. The rate of duty was then expressed by reference to “the amount of value of the consideration for the sale”. Section 54 provided that the expression “conveyance on sale” included every instrument whereby any property, or any estate or interest in any property, upon the sale thereof is transferred to or vested in a purchaser.
The Commissioners of Inland Revenue contended that since the sale agreement and the development agreement were part of a single commercial transaction, the substance of that transaction had to be identified. The substance was the sale by the developers to Prudential of the land plus the finished buildings and the consideration for that sale was £10,709,522. The transfer was accordingly liable for stamp duty. Prudential appealed contending that the transfer was a transfer on sale of the property comprised in that transfer, ie the land and building works so far as then completed. The transfer passed title to that property as it then subsisted. The consideration for sale of that property was £6,139,712.
Held The appeal was allowed.
1. The dutiable class of documents was defined in the Act as “conveyance or transfer on sale of any property”. The words which followed stated the amount of duty payable on such documents. It was clear that the phrase “amount or value of the consideration for the sale” in the Stamp Act, and the corresponding phrase in amending legislation, was referring to the consideration for the sale of the property, which was being completed by the conveyance or transfer in question. A conveyance passed title to property; if it was a conveyance on sale, stamp duty was exigible on that document pursuant to the charging provision under consideration.
2. The court had first to identify the subject-matter of the sale. In doing so it had to have regard to the commercial substance of the transaction and to the shape or form which the parties had chosen for their transaction: see Cormack’s Trustees v IRC 1924 SC 819 at p 826.
3. In the present case the sale agreement and the development agreement and the transfer were all part of one transaction in the sense that together they comprised a single package or bargain. They were all executed on the same day and simultaneously. Clearly the end result intended by the parties was that the land, previously belonging to the developers, would become the property of Prudential together with the new buildings being constructed by the developers. The commercial object of the transaction was that Prudential would acquire a development being carried out for it by the developers with funds provided by Prudential. However, the transaction by which that end result was sought to be achieved could not be characterised as a sale of the land with finished buildings thereon. That was not the legal shape of the transaction. The sale agreement was, as the parties intended, completed independently of the carrying out of the building works under the development agreement.
4. Although commercially there was only one transaction, the price payable for the building works was not properly attributable to the sale of the land. The two contracts formed part of one transaction at their inception, but in their performance they were independent of each other. Completion of the sale of the land was not dependent upon, or geared to, the due completion of the building works. The sale was of the plot of land at the agreed price and the consideration payable by the buyer for the subsequent building work was in return for those works and not for the sale of land: see McInnes v IRC 1934 SC 424; Kimbers v IRC [1936] 1 KB 332; and Paul v IRC 1936 SC 443.
5. The court would make a declaration to the effect that the deed of transfer dated October 18 1989 was chargeable with duty of £61,398. Repayment of the excess duty which had been paid together with interest was ordered.
Nicholas Warren (instructed by the solicitor for the Inland Revenue) appeared for the Commissioners of Inland Revenue; Patrick Soares (instructed by Lovell White Durrant) appeared for Prudential Assurance Co Ltd.