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

The SDLT legislation is contained in Parts 4 and 9 FA 2003. Broadly, SDLT is a tax charged on “land transactions” (s42(1)), defined as including the acquisition of a “chargeable interest” (s43(1)), which in turn is defined as including “an estate, interest, right or power in or over land” (s48(1)). It was common ground that the Tower Lease is a “chargeable interest”.

SDLT is charged on the purchaser (s85(1)), who must notify the transaction by way of a land transaction return (SDLT1) within a specified period of the effective date of the transaction (s76(1)). The effective date of a transaction is generally the date of completion (s119(1)).

Paragraph 3 of Schedule 16, which deals with the treatment of bare trustees, provides that:

“3(1) Subject to sub-paragraph (2), where a person acquires a chargeable interest or an interest in a partnership as bare trustee, this Part applies as if the interest were vested in, and the acts of the trustee in relation to it were the acts of, the person or persons for whom he is trustee.

(2)

Sub-paragraph (1) does not apply in relation to the grant of a lease.

(3)

Where a lease is granted to a person as bare trustee, he is treated for the purposes of this Part, as it applies in relation to the grant of the lease, as purchaser of the whole of the interest acquired.

(4)

Where a lease is granted by a person as bare trustee, he is to be treated for the purposes of this Part, as it applies in relation to the grant of the lease, as vendor of the whole of the interest disposed of.”

A transaction is exempt from charge if, at the effective date, the vendor and the purchaser are companies that are members of the same group. Group relief must be claimed in the SDLT1 (s62(3)). Paragraph 2(4A) provides:

“2(4A) 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 or tax under this Part.”

Paragraph 2(5) provides that ““arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable;…”.

SDLT is ordinarily charged by reference to the actual consideration given for the acquisition (s50(1) and paragraph 1 of Schedule 4). However, where the purchaser is a company and the vendor is connected with the company, the “deemed market value rule” applies - the chargeable consideration for the transaction is taken to be not less than the market value of the subject-matter of the transaction (s53(1A)).

Section 53 applies subject to the exceptions provided for in s54. Section 54 sets out three exceptions from the deemed market value rule, one of which is in s54(4). Section 54(4) provides that s53 shall not apply as follows (this being the “Case 3 Exception”):

“(4)

Case 3 is where -

(a)

the vendor is a company and the transaction is, or is part of, a distribution of the assets of that company (whether or not in connection with its winding up), and

(b)

it is not the case that -

(i)

the subject-matter of the transaction, or

(ii)

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.”

Section 75A applies when: (a) a chargeable interest is disposed of and acquired by another person, (b) involving a number of transactions and (c) the SDLT payable is less than the amount that would be payable on a notional transaction effecting the acquisition of the chargeable interest directly.

Section 75C(2) provides that the notional transaction attracts any relief which it would have attracted if it were an actual transaction and s75C(6) provides that s53 (deemed market value rule) applies to the notional transaction.