Stamp duty land tax – Tax avoidance scheme – Retrospective legislation – Judicial review – Claimants seeking permission to apply for judicial review of retrospective legislation making tax avoidance scheme ineffective – Whether claimants establishing real prospect of success – Application dismissed
The claimant taxpayers took part in a tax avoidance scheme which was designed to miminise its exposure to stamp duty land tax (SDLT). They sought permission to apply for judicial review of section 194(1)(a) and (2) of the Finance Act 2013, s 194, which by amending section 45 of the Finance Act 2003, with retrospective effect, made it plain that SDLT was chargeable in full on transactions structured in accordance with the scheme.
The defendant Treasury and HMRC Commissioners contended that the legislation merely confirmed that the scheme had always been ineffective; the claimants contended that the scheme was effective and the retrospective legislation had had deprived them of the chance of establishing that before the First tier Tribunal. They argued that the retrospective changes to the legislation were contrary to article 1 of protocol 1 (A1P1) and article 6 of the European Convention on Human Rights.
Held: The application was dismissed.
(1) The court was not persuaded that A1P1 had been engaged. The claimants were all purchasers of land. The claim for judicial review did not seek to challenge the provisions of the 2003 Act which required purchasers of land to pay SDLT. They were contending that a liability to pay tax had been imposed upon them by the legislation in circumstances where they would not otherwise have been liable to make such payment. However, the underlying premise, namely the absence of such liability until the retrospective legislation was enacted, and thus an entitlement to keep the money, had not been established, and depended on the application and interpretation of the pre-existing legislation, which had always been contentious. Unless the claimants could establish that section 45 applied, they would be liable to pay SDLT like any other purchaser of land. Sections 194(1)(a) and 194(2) of the 2013 Act did not impose a liability on the claimants to make any payment. They deprived them of an argument that they were not liable to pay the tax, or of a defence to HMRC’s claim. A legal argument, whatever its merits, was not a “possession” for the purposes of A1P1. The fact that the claimants were not making a claim for a tax refund or some form of restitutionary claim was irrelevant to that analysis: R (on the application of Huitson) v Revenue and Customs Commissioners [2011] EWCA Civ 893; [2012] QB 489 considered.
(2) In any event, it was a legitimate and important aim of UK public policy in fiscal affairs to ensure that everybody buying property paid their fair share of SDLT and that legislation designed to alleviate the unfairness of imposing a charge to SDLT twice on what was essentially a single transaction, by ensuring that the burden of taxation fell on the person who actually acquired the chargeable interest in land, should not be permitted to become an instrument by which that person avoided paying SDLT altogether. It was therefore within the permissible area of discretionary judgment of Parliament to legislate, with retrospective effect, to prevent taxpayers from using, by wholly artificial arrangements, section 45 of the 2003 Act so as to produce an outcome which was the very opposite of what Parliament had intended. The legislature’s assessment, far from being devoid of reasonable foundation, was well within the generous margin of appreciation afforded to it and strikes a fair balance between the various interests involved.
(3) Similarly, article 6 was not even arguably engaged in a case such as the present. Moreover, even if the article were capable of being engaged, there were considerable difficulties with the argument that retrospective legislation which manifestly satisfied the requirements of A1P1 could nevertheless be struck down as incompatible with article 6 because of its higher threshold of establishing “compelling grounds of the public interest” rather than simply demonstrating that the claim to be acting in the public interest was not “manifestly without reasonable justification”. There was little difficulty in reaching the conclusion that the legislation easily satisfied the higher test of compelling grounds in the public interest. The interference with the claimants’ rights to air their arguments as to the effectiveness of this artificial tax avoidance scheme was proportionate and justified for the same reasons as in respect of A1P1. It was equally compelling justification for retrospective legislation that it would have the desirable effect that the relevant provisions of the 2003 Act would operate in the manner that Parliament originally intended, and that the small minority of people who sought to gain an advantage over other taxpayers who paid SDLT, by making use of similar artificial schemes, would be deterred from doing so by the realisation that they simply would not be allowed to work to their advantage: R (on the application of ToTel) v First tier Tribunal (Tax Chamber) [2011] EWHC 652 (Admin) followed.
(4) In all the circumstances, the claimants had failed to establish that their arguments had a real prospect of success. They fell short of that threshold by a considerable margin and the application for permission would be refused.
Jeremy Woolf (instructed by PWT Advice LLP) appeared for the claimants; Kieron Beal QC and Simon Pritchard (instructed by General Counsel and Solicitor for HM Revenue & Customs) appeared for the defendants.
Eileen O’Grady, barrister
