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

Ms Shaw submitted that even if a main purpose of the arrangements was to obtain a tax-free step-up in the carrying value of the Tower, it cannot now be said that its purpose is the avoidance of tax when it is common ground that the profit/gain of £170m was and is taxable.

The error in the FTT’s approach is that it assumes that the statutory question must be asked solely by reference to the state of affairs (in this instance, the mistaken belief that a tax-free step-up would be obtained) as at the date of the Transaction and without reference to any subsequent events (in this instance, the discovery that tax was in fact payable).

Once the group discovered that tax was, and always had been, payable it cannot be said that the purpose of the arrangements is the avoidance of tax. The result of the mistake is that there is only one purpose, namely the commercial purpose. To interpret the legislation as asking whether a purpose of the arrangements was the avoidance of tax and to apply it even if the arrangements did not and never will result in any tax avoidance essentially treats paragraph 2(4A) as a penal provision intended to punish mere thoughts or attempts to avoid tax. There is no basis for interpreting paragraph 2(4A) in this way. As the FTT observed at [63(2)], paragraph 2(4A) does not prohibit or seek to undo the effects of tax avoidance arrangements; it only denies the availability of group relief from SDLT. As such, the practical effect of the provision is that it only disincentivises “tax avoidance arrangements that will result in a tax saving that is less than the amount of SDLT payable” ([63(3)]).

Arrangements which do not have the effect of avoiding tax are not captured by the provision, regardless of their purpose at the time of entering into them.

This does not lead to anomalous results. The difference between a mistaken belief as to the quantum of tax avoided (the example in [63(4)]) and a mistaken belief as to the avoidance of tax (the example in [63(5)]) is that in the latter scenario no tax is avoided whereas in the former scenario the purpose of the arrangements is still the avoidance of tax (albeit of a lesser amount than anticipated).