Taxation – Stamp duty land tax – Group relief – Deemed market value rule – Appellant acquiring lease from company in same group – Land transaction returns claiming group relief – First-tier Tribunal holding group relief not available as one of main purposes was avoidance of liability to tax and applying deemed market value rule – Whether FTT erring in law – Appeal dismissed
The appellant appealed against an assessment to stamp duty land tax on its acquisition from another company in the same group of a 999-year lease in respect of a 50-storey residential property development known as “the Tower” at St George’s wharf, London. The First-tier Tribunal found that there were bona fide commercial reasons for the transfer of the lease but the appellant was not entitled to group relief as the transaction formed part of arrangements of which one of the main purposes was the tax avoidance. Further, SDLT was to be assessed on the market value of the lease and not the actual consideration. The appellant appealed.
Paragraph 2(4A) of schedule 7 to the Finance Act 2003 provided that “group relief is not available if the transaction (a) is not effected for bona fide commercial reasons, or (b) forms part of arrangements of which the main purpose, or one of the main purposes, is the avoidance of liability to tax. “Tax” here means stamp duty, income tax, corporation tax, capital gains tax… ”.
The appellant argued that the FTT erred in law in concluding that the appellant was not entitled to group relief; but if the appellant was not entitled to group relief, the FTT erred in concluding that it was liable to SDLT on the market value of the lease rather than the consideration paid to acquire the lease.
Held: The appeal was dismissed.
(1) Paragraph 2(4A) referred to purpose; there was no reference to the outcome or effect of the arrangements. There was a distinction between the purpose of arrangements, and the question whether the arrangements were effective in achieving that purpose. The use of the present tense, namely that a main purpose “… is the avoidance of liability to tax” did not mean that where it was subsequently accepted that the tax benefit was not available it could not be said that the purpose “is” (rather than “was”) the avoidance of liability to tax. The question of purpose was tested at the time of the land transaction in respect of which group relief was claimed, here the transfer of the lease. The legislation applied by reference to the purpose of the arrangements and not by reference to the effect or outcome thereof: BlackRock Holdco 5 LLC v HMRC [2024] EWCA Civ 330 considered.
(2) There was nothing in the language of paragraph 2(4A) to indicate that a purpose of avoiding liability to tax which would or might arise in the future was not caught. The transactions implemented pursuant to the step plan were intended to give the appellant a base cost in the lease equal to the market value of the Tower at the time of the transaction, ie, as if the appellant had acquired the lease for its market value (of £200m) but without any company in the group having to pay tax on the profit of (£170m) that would arise on a direct sale of the Tower or the lease to the appellant for such a price. The cash benefit of that would only arise to the appellant and the group in the future, or contingently, on the disposal of units. However, tax avoidance, namely an increase in the base cost without any company being liable for corporation tax on the “gain” from approximately £30m to £200m, formed part of the arrangements themselves and was not a result of future or contingent events. On the facts found by the FTT, the avoidance of tax was of a current liability to tax on the latent profit or gain, and not the avoidance of a future or contingent liability to tax.
There was no error of law in the FTT’s approach to purpose, and its conclusion was one that the FTT was entitled to reach on the basis of the facts found. The question whether in fact one of the main objects was to avoid tax was for the FTT to decide upon a consideration of all the relevant evidence before it and the inferences to be drawn therefrom.
(3) SDLT was charged on the “chargeable consideration” for the transaction, which was generally the actual consideration given for the subject matter of the transaction. Where the land transaction was between connected companies, section 53(1A) of the 2003 Act required that the chargeable consideration was taken to be not less than the market value of the subject matter of the transaction.
It was common ground that the transaction was within section 53(1) of the 2003 Act, on the basis that the appellant was a company and it was connected with “the vendor” for that purpose. Where that section applied, the chargeable consideration for the transaction was taken to be not less than the market value of the subject matter of the transaction as at the effective date of the transaction.
(4) The appellant relied on the Case 3 exception in section 54(4) which provided that section 53 did not apply where “the vendor is a company and the transaction is, or is part of, a distribution of the assets of that company… , and it is not the case that the subject matter of the transaction, or an interest from which that interest is derived, has, within the period of three years immediately preceding the effective date of the transaction, been the subject of a transaction in respect of which group relief was claimed by the vendor”. ll
In the present case, the grant of the lease to the vendor was made earlier on the same date as the subsequent transfer to the appellant and was within the required period as it had occurred within three years of the transfer of the lease. Accordingly, the transfer to the appellant was not within the Case 3 exception to the deemed market value rule. The lease had, “within the period of three years immediately preceding the effective date of the transaction, been the subject of a transaction in respect of which group relief was claimed. Therefore, the FTT did not make an error of law in concluding that the Case 3 exception did not apply.
Nicola Shaw KC (instructed by Herbert Smith Freehills LLP) appeared for the appellant; Michael Jones KC (instructed by HMRC Solicitors) appeared for the respondents.
Eileen O’Grady is a barrister
