The Finance Act 2003 introduced an entirely new regime for the payment of stamp duty. The government explained that it was concerned about avoidance of stamp duty by a minority, at the expense of the public in general. It had noticed that some taxpayers were structuring property transactions in increasingly artificial ways to avoid stamp duty and was determined to stop such abuse. Consequently, stamp duty land tax is levied on transactions – and not the supporting documentation.
It took time for the property industry to recognise the depth of the change in approach. Some taxpayers sought to take advantage of inevitable teething problems following the introduction of the new tax and seized on loopholes in the legislation to minimise the duty payable. However, the government introduced further legislation requiring taxpayers to disclose tax avoidance schemes to HMRC to enable it to close such loopholes. It also warned of the possibility of retrospective legislation to put paid to serious tax abuse.
In R (on the application of St Matthews (West) Ltd v HM Treasury [2014] EWHC 1848 (Admin); [2014] PLSCS 245, taxpayers sought to challenge, by way of judicial review, provisions in the Finance Act 2013 that had unexpectedly closed a loophole retrospectively on a tax avoidance scheme. The scheme took advantage of sub-sale relief and was itself a variant of another scheme that the government had acted to close.
HMRC took the view that the scheme had never been effective and that the new provisions merely confirmed this. The taxpayers claimed that their scheme was effective and that the retrospective legislation had deprived them of the opportunity of establishing this in judicial proceedings in breach of their human rights. They argued that the tax lost to the public purse, in the sum of some £7m, was too small to justify the use of retrospective legislation to quash the scheme and alleged that the government had failed to comply with its own protocol on unscheduled changes in tax law. The protocol states that changes that take effect retrospectively will normally apply where there is “a significant risk to the Exchequer” and “will be wholly exceptional”.
The judge rejected the taxpayers’ application. She doubted whether Articles 1 or 6 of the ECHR were engaged but, if so, noted that states enjoy a wide margin of appreciation when framing and implementing tax policies. Given the history of previous tax abuse in this area, the Chancellor’s clear warnings, and a previous announcement of retrospective legislation to close down similar schemes, it should have been obvious to promoters and users of this scheme that it too could be subject to swift and retrospective action. Therefore, those entering into the scheme did so at their own risk.
It was important to look at the bigger picture. The legislation was not arbitrary or capricious. It was proportionate and justified. It was enacted for good reasons and had been scrutinised and approved by Parliament, which was not bound by the protocol. The government was trying to ensure that sub-sales relief operated to avoid double taxation without being abused. Its aim was that everyone who buys property should pay their fair share of tax and it was trying to send out an unequivocal message that it was no good trying to get around its anti-avoidance legislation by coming up with variations on schemes that have already been outlawed, because there would be no advantage in doing so.
Allyson Colby is a property law consultant
