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

Mr Jones submitted that the FTT had reached the right conclusion for the right reasons.

Section 54(4)(b) looks back over a period of three years prior to the distribution transaction and asks whether a transaction involving the same subject, and in respect of which group relief was claimed, has taken place within that time. That period starts with the transaction that is, or is part of, the distribution (here, the Transaction) and extends backwards three years. As the FTT correctly held, it thus includes transactions that took place earlier on the same day as the distribution transaction.

Mr Jones submitted that this accords with the purpose of the provision. In his written submissions after the hearing he noted that, subject to the parties’ positions on the meaning of the word “claimed”, there was not much disagreement between the parties as to the purpose of the proviso, which is to prevent the application of the Case 3 Exception in instances where group relief has been claimed on the subject-matter of the distribution, or an interest from which that subject-matter has derived, in the three years prior to the distribution in question.

On Tower One’s construction, there is an uncovered gap that opens up from midnight the day before the distribution transaction takes place and closes once that transaction is complete. Thus, a transaction on which group relief was claimed that precedes the distribution transaction by two years and 11 months would be caught, but one that precedes it by an hour on the same day would not be. It is difficult to see any justification for such an interpretation of the legislation, the purpose of which is clear. The existence of such a gap is inconsistent with the drafting of the legislation, which uses the language “immediately preceding…”, suggesting there should not be any gap.

Mr Jones addressed the significance of the use of the words “the effective date of”, submitting that if such words had not been included then there could be no debate by Tower One as to the application of the provision. He submitted that the inclusion of these words did not make a difference to the interpretation:

As a matter of fact, the transaction between SGSL and B64 preceded the Transaction, even if only by a matter of an hour or so. It therefore falls within the timeframe set out in the proviso in s54(4)(b).

As to Tower One’s second argument, Mr Jones submitted that the legislation merely asks whether the prior transaction was one “in respect of which group relief was claimed”. This is a simple question of fact, which is not unreasonable or anomalous. It does not invite or require an examination of the validity or outcome of the claim. Had Parliament intended otherwise then it is reasonable to suppose that this would have been stated expressly. Indeed, the use of a simple factual test is consistent with Parliament’s selection of a fixed three-year look-back period – there does not appear to be any particular reason why this length of time has been selected as the cut-off point; Parliament has simply chosen to draw the line there for the sake of simplicity and ease of application. The choice of asking simply whether group relief “was claimed” is explicable on the same footing.

Moreover, on Tower One’s construction it is not clear how the proviso is meant to be applied in practice. Suppose a distribution transaction takes place two weeks after a prior transaction in respect of which group relief has been claimed: is the prior group relief claim to be treated as successful because it has not been rejected (so that the Case 3 Exception cannot apply in respect of the distribution)? What if the claim is subsequently challenged by HMRC? What if that challenge is overturned by a tribunal on appeal? It cannot be the case that the proviso in s54(4)(b) is engaged, then dis-engaged, then re-engaged, etc depending on these events, such that whether the exception applies cannot be determined at the time that the distribution is made. This is not least because the taxpayer needs to file an SDLT1 return (and therefore decide whether SDLT applies to the distribution transaction) shortly after the effective date.

In any event, Mr Jones submitted that even on Tower One’s construction, this aspect of the proviso was met. Tower One submits (in its written submissions) that the proviso requires “an intragroup transfer which enjoyed the benefit of group relief”. Here, that was in fact the case. SGSL granted the Tower Lease to B64 and B64 made a claim for group relief under Schedule 7. HMRC had concluded that the group relief claim made by B64 did not need to be considered because sub-sale relief was available, and that group relief was not available to Tower One. However, the FTT has held that sub-sale relief did not apply to the circumstances of the grant of the Tower Lease by SGSL to B64 followed by the transfer from B64 to Tower One. The end result is that a group relief claim was made by B64 and no SDLT was paid by B64; on a “wait and see approach”, the claim for group relief has in any event been allowed, ie the grant of the Tower Lease to B64 was “an intragroup transfer which enjoyed the benefit of group relief”.