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

Ms Shaw submitted that the FTT had made an error of law in concluding that the Case 3 Exception did not apply, relying on two alternative reasons:

Ms Shaw submitted that the purpose of the deemed market value rule is to stop a vendor avoiding SDLT on a sale of land by transferring the land to a connected company for a nominal consideration and then selling the shares in the transferee company, paying stamp duty or stamp duty reserve tax at 0.5% - the effect of s53 in this situation being to capture and charge to SDLT the value of the land upon its transfer to a connected company. The purpose of s54(4) is then to exclude the deemed market value rule in the case of transfers between connected companies by way of distribution of the vendor’s assets; this is readily understandable because SDLT is charged on the consideration given for the acquisition of land and a distribution is a transfer of value made to the member or members of a company for no consideration. The purpose of the proviso – the requirement that the subject matter has not “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” – is essentially the same as the purpose of clawback of group relief (under paragraph 3 of Schedule 7), namely to ensure that land which has enjoyed the benefit of group relief in the last three years does not leave the group without the value of the land being charged to SDLT on exit from the group.

Ms Shaw thus submitted that the proviso is an anti-avoidance measure to prevent an abuse of group relief where land has been transferred intragroup without charge and is then distributed out of the group within a three year period. It therefore followed that the class of facts intended to be affected by the proviso involved a transfer of land out of a group by way of distribution where the land in question has recently (in the last three years) been the subject of an intragroup transfer which enjoyed the benefit of group relief.

Tower One’s first reason for submitting that the Case 3 Exception did not apply was that “the period of three years immediately preceding the effective date” means the period from 5 July 2008 to 4 July 2011. The grant of the Tower Lease to B64 took place on 5 July 2011, which is not within that specified period.

Ms Shaw submitted that it is irrelevant that all transactions in fact take place at a specific point in time (as relied on by the FTT). The FTT’s interpretation ignored the words “the effective date of”, and asked only whether the grant of the lease to B64 had preceded the transfer of the Tower Lease. “Effective date” is a defined term (in s119) and is used almost 200 times in FA 2003; it must be interpreted consistently. Even if it is reasonable to assume that Parliament did not intend for transactions which had taken place earlier on the date of the distribution transaction to be treated differently from those which had taken place on, say, the previous day, there are limits to what a purposive interpretation can achieve and it was not the function of the FTT or this tribunal to override or ignore the plain meaning of the statutory language by re-writing the proviso to read “immediately preceding and including the effective date”. Any anomalies or unintended consequences are for Parliament to remedy – the permissible bounds of interpretation do not extend to filling gaps or remedying anomalies.

Tower One’s second (alternative) reason was that B64 should not be treated as having made a claim for group relief for the purposes of the Case 3 Exception.

Ms Shaw submitted that the requirement to demonstrate that the prior transaction is not one “in respect of which group relief was claimed by the vendor” is not determined simply by looking at the original SDLT1 without regard to whether that claim had been subsequently withdrawn or rejected/ignored by HMRC. There is no obvious reason why Parliament should have intended such a limited approach to be taken; what the legislation is trying to identify is transactions in respect of which group relief was claimed without subsequent amendment or dispute. In circumstances where the claim for group relief is disputed, then it is only in the most formalistic of senses that the transaction might be described as one “in respect of which group relief was claimed by the vendor”. The interpretation adopted by the FTT leads to inequitable results in a situation where the benefit of the claimed group relief was not in fact available, eg because it was disallowed following an HMRC enquiry, yet the Case 3 Exception is nevertheless denied on a subsequent distribution transaction.

Ms Shaw submitted that we should apply a purposive interpretation to this language, and not take a literal approach. This is not impracticable, as the Case 3 Exception arises in the context of transactions intragroup, such that the subsequent transferee will be well aware of the full circumstances. A purposive interpretation requires that the word “claimed” should be taken to refer to a claim that has the real and practical effect of obtaining group relief.

In reply at the hearing, Ms Shaw submitted that HMRC’s approach of looking solely at the state of affairs at the time of the distribution transaction would lead to an oddity where the prior transaction had taken place but the SDLT1 claiming group relief had not yet been filed. Ms Shaw submitted that although the time/date of filing the SDLT1 by B64 in respect of the grant of the Tower Lease was not in evidence, it was very unlikely that it would have been submitted before the rest of the transactions that day, and HMRC’s acknowledgement of receipt of the SDLT1 (which was in the bundle) was dated 7 July 2011. If we can look to a subsequent submission of the SDLT1 (and Ms Shaw agreed we should), there should be no difficulty in looking at subsequent events including the outcome of the claim.

Furthermore, Ms Shaw’s written submissions after the hearing included the submission that it is not factually correct to say that the claim for group relief had in practice succeeded. HMRC had concluded that sub-sale relief was available and that group relief was not available; the reliance on sub-sale relief meant that the claim for group relief had no real or practical effect.

On this basis, the facts of the present case do not fall within the class intended to be affected by the provision:

The facts do not therefore “answer to the statutory description”.