UT (Tax & Chancery) UT/2022/0092 - [2024] UKUT 00373 (TCC)

The facts as found by the FTT were as follows:

In 1997, St George (South London) Limited (“SGSL”), a member of the same group of companies as St George PLC (“St George”), acquired the freehold interest in a site known as St George’s Wharf ([8]). In 2000, SGSL sold St George’s Wharf to St George, but did not transfer the legal title; SGSL retained the legal title on bare trust for St George ([9]).

St George carried out a phased development of St George’s Wharf, which included the Tower, a 50-storey residential building at St George’s Wharf ([10]).

In February 2010, the Berkeley group of companies (of which St George and SGSL were members), identified various commercial advantages to moving certain developments, of which the Tower was one, into separate legal entities ([12]).

About a week later, the group’s tax advisers, PwC, prepared a discussion document (the “step plan”) showing that a corporation tax (“CT”) advantage (in the form of a tax-free step-up from book cost to market value in the carrying value of the Tower) could be obtained if certain steps were implemented ([12]). PwC prepared further iterations of the step plan in November 2010 and July 2011 ([14]).

As at 31 December 2010 the market value of the Tower was £200m and its book value was £29,900,750, and accordingly there was a latent profit/gain of £170m ([16] and [17]). The FTT found:

“17.

…The intended effect of the step plan was that a subsequent disposal of the Tower by [Tower One] would only give rise to taxable profits for [Tower One] to the extent that the sale proceeds exceeded the £200 million market value of the Lease as at the date of its acquisition. The step plan thus envisaged that the £170 million “step up” of the carrying value of the Tower to its present market value would be tax free.”

The relevant steps, all of which were carried out on 5 July 2011 and in accordance with the step plan, included (at [18]):

HMRC enquired into Tower One’s CT return for the year ended 30 April 2012.

Land transaction returns (SDLT1) were filed:

The returns each included a claim for group relief from SDLT. HMRC concluded that the group relief claim by B64 did not need to be considered as sub-sale relief was available, and that group relief was not available to Tower One because the Transaction formed part of arrangements of which the main purpose, or one of the main purposes, was the avoidance of liability to tax. HMRC assessed Tower One to SDLT of £8m, ie 4% on consideration of £200m.

The FTT made the following “Findings of disputed facts”:

“41.

The Tribunal finds that at all material times the group of companies wanted to transfer the Tower to the Appellant in order to ring-fence risks and potential liabilities associated with the development, and to provide greater financial flexibility by opening up the prospect of securitized borrowing from a wider group of lenders. These were bona fide commercial reasons, that provided a commercial benefit.

42.

The Tribunal is satisfied on the evidence that the group, when it first discussed with PwC the possibility of transferring the Tower to an SPV, was contemplating doing so for the reasons identified in the previous paragraph. The evidence of Mr Stearn is that he contacted PwC, the group’s principal tax advisers at the time, as the group was “seeking to ensure that transferring the development to an SPV would not give rise to adverse tax consequences”. The Tribunal is satisfied that the process that led to the series of transactions on 5 July 2011 was not originally initiated out of a motive to avoid tax. The Tribunal is satisfied that if the group had never been made aware by PwC of the possible corporation tax advantage that could be obtained via the step plan, the group would likely have transferred the Tower directly from SGSL to the Appellant or another SPV in order to achieve its original purposes.

43.

The Tribunal is satisfied that once the group received the advice about the corporation tax advantage that could be obtained, it attached considerable importance to ensuring that this advice was correctly followed, and that the expected significant tax benefit was obtained.

44.

The PwC step plan went through several iterations. Mr Stearn could not recall exactly how much PwC was paid for their advice, but suspected that it was in the tens of thousands of pounds. Execution of the step plan required a considerable number of transactions, the documentation for which had to be carefully prepared in advance (see paragraph 83(2) below).

45.

The Tribunal finds that if the transactions entered into on 5 July 2011 had been effective to produce the expected corporation tax advantages, the group would have saved somewhere in the region of £44 million in corporation tax (being the tax on the £170 million tax free “step up” from book value to market value), albeit this benefit might have taken several years to be realised. This was on any view a very significant amount.

46.

Even if the Appellant had had no other reason for wanting to transfer the Tower to the Appellant, the mere possibility of realising a tax advantage of this magnitude might in and of itself have arguably provided a financial incentive for the Appellant to do so. However, the Tribunal proceeds on the basis that the group would not have transferred the Tower to the Appellant solely for the corporation tax advantage if there had been no other commercial reason for doing so. The evidence of Mr Stearn is that the group would not have done so, and there is no evidence positively indicating the contrary.

47.

HMRC suggest that the group must have considered the original reasons for transferring the Tower to the Appellant to be less important than the expected tax advantages, given that the risk of a catastrophic event affecting the Tower was extremely small, that the ring-fencing would not completely insulate the rest of the group from damage caused by any such catastrophic event (for instance, through reputational damage), given that funding for the development might still be found even if it was not transferred to an SPV, given that the development could always have been moved to an SPV at a later time if this had proved genuinely necessary, and given the magnitude of the expected tax saving. However, the evidence before the Tribunal is not sufficient to allow the Tribunal to make any assessment of its own of the commercial significance of these matters, and to weigh them against the significance of the tax benefits. The Tribunal is unable to conclude that the tax benefits ever became more important to the Appellant than the original commercial considerations.”

We have set out the reasoning and conclusions of the FTT when addressing the grounds of appeal below.