UT (Tax & Chancery) UT-2024-000024 - [2025] UKUT 00156 (TCC)

The FTT addressed ‘the time limit issue’ at [155]-[166]. It concluded at [164]-[166] that the discovery assessments were made out of time because Return A in relation to the Appellants’ purchase of the property from the vendor with the benefit of sub-sale relief met the requirement under ss76 and 77 FA 2003 to file a return in respect of the notional transaction under s75A FA 2003. The extended time limit in paragraph 31(2A)(b) was therefore not engaged:

“164.

…As I understand it, [Mr Chacko’s] analysis – consistent with the Upper Tribunal’s comments in Brown (Brown [88]-[89]) – is as follows.

(1)

Under section 76(1), a return is filed by the “purchaser” in respect of a “notifiable transaction” as defined in section 77(1) FA 2003.

(2)

As the opening words of that section make clear, each notifiable transaction is a “land transaction”. A “land transaction” is “any acquisition of a chargeable interest” (section 43 FA 2003). The reference to the “purchaser” in section 76 is to the person acquiring the chargeable interest (section 43(4) FA 2003).

(3)

As the Upper Tribunal identified in Brown, the matters that are covered by the return are defined by reference to the land transaction i.e. the particular acquisition of a chargeable interest by the particular purchaser. It does not matter whether the acquisition for SDLT purposes takes place pursuant an actual transaction or to a notional transaction under section 75A.

(4)

On that analysis, in a case, such as this, where the acquisition of the relevant chargeable interest by the purchaser is the subject of a return made by the same purchaser, that return (i.e. Return A) will meet the requirement to submit a return in respect of the notional transaction for the purposes of section 76 and section 77 FA 2003.

(5)

If so, in this case, paragraph 31(2A)(b) Schedule 10 FA 2003 does not apply; the discovery assessments were made outside the time limits in paragraph 31 FA 2003 and are out of time.

165.

I should note, however, that the transactions in Project Blue (and in Brown) took place under a slightly different regime for the notification of land transactions in SDLT returns. In particular, they took place before the introduction in Finance Act 2008 of a new section 77 FA 2003, which included the specific reference to “a notional land transaction under section 75A” (in paragraph (d) of subsection (1)) in the list of notifiable transactions. The effect of that change, in combination with the obligations to file returns in section 76 FA 2003, was to introduce a specific obligation to file an SDLT return in respect of a notional land transaction created by section 75A FA 2003. There was no such specific reference in the prior legislation.

166...However, if I am wrong on that issue [the validity of the enquiry notices], I would agree with Mr Chacko that Return A was a return in respect of the notional transaction under section 75A. Paragraph 31(2A)(b) Schedule 10 FA 2003 does not apply. The discovery assessments are therefore out of time.”

In these paragraphs the FTT was referring to the decision of the Upper Tribunal in Brown v HM Revenue & Customs [2022] UKUT 298. That decision was subsequently upheld by the Court of Appeal at [2024] EWCA Civ 92.

Mr Elliott’s case was that the FTT erred in law in finding that Return A was a return in respect of the notional land transaction under s75A.

Mr Chacko’s case was that HMRC's position is contrary to the approach both of the Supreme Court in Project Blue and of the Court of Appeal in Brown. He submitted as follows.

In Project Blue, Lord Hodge explained at [81] - [84] that where a return showing zero consideration had been filed for the acquisition of the land by Project Blue (“PBL”) from the Ministry of Defence (“MoD”), the equivalent of Return A, it could be amended by HMRC to bring in a charge under s75A on the notional transaction, which was the acquisition of the same land by the same purchaser. The s75A notional transaction was part of the tax consequences of the sale in relation to which the return had been filed.

In Brown, no return had been filed at all. HMRC therefore raised a determination in respect of the taxpayer's acquisition of the property under paragraph 25 Schedule 10 FA 2003. We should note at this stage that if by the filing date no land transaction return has been submitted in relation to a chargeable transaction, HMRC may make a determination pursuant to paragraph 25 of the tax chargeable in respect of the transaction. No determination can be made more than 4 years after the effective date of the transaction, which is usually the date of completion in relation to a property purchase.

The taxpayer in Brown argued that if HMRC wanted to rely on s75A as the basis for a charge to tax they should have raised two determinations: one for the actual acquisition of the property and one for the notional acquisition of the property. The Court of Appeal disagreed, explaining that s75A is a deeming provision which, at least where the notional transaction involves the same person acquiring the property as the actual transaction, only serves to calculate the proper amount of SDLT due (see Lewison LJ at [68] - [69]) but which does not ignore the real-world acquisition of the property. Therefore, the same determination in respect of that acquisition could be upheld either on the basis that a relief had wrongly been claimed or on the basis that s 75A applied.

Mr Chacko contended that in these appeals, the real world purchase was disclosed in Return A. Section 75A operates, as set out in Brown, to recalculate the consideration in respect of that acquisition. The consequences of the notional transaction are within the scope of the material in that return, as explained by Lord Hodge in Project Blue. The FTT was right, therefore, to find there had been no failure to file the relevant return and para 31(2A)(b) did not apply.

Mr Chacko submitted that the Appellants’ advisors wrote to HMRC explaining why they did not think a s75A charge applied. Paragraph 31(2A)(b) must be construed purposively, like any other legislation, and it is hard to see how on any realistic view of the facts the understatement of tax here is attributable to a failure to disclose the transaction to HMRC. He argued that on HMRC's case it is not clear how a taxpayer would ever avoid a 20-year assessment window if s75A is in issue. Even if a fourth return had been filed, also for zero consideration, as that was the view the Appellants’ advisers had taken, but stating that it was for the notional transaction between the Appellants and the vendor, that would have been a different notional transaction to the one upheld in Project Blue. The consideration would be different, and HMRC would presumably still argue that there had been a failure to file a return.

Whilst it makes no difference to the outcome of these appeals, we agree with Mr Elliott that the FTT did err in law in determining the Assessments Appeal and finding that HMRC’s protective discovery assessments were out of time.

The starting point is the wording of s77(1), as amended by Finance Act 2008 to specifically identify the notional transaction under s75A as a notifiable transaction. Section 76 therefore requires a taxpayer to file a return in respect of a notional transaction. The wording of the legislation is unambiguous in this regard. In particular, section 76 states that the taxpayer is obliged to deliver a return in relation to “every notifiable transaction”. The actual scheme transactions are to be disregarded so there was no obligation to file any returns in respect of those transactions.

Mr Chacko sought to argue for a purposive interpretation of ss 75A, 76 and 77. It is right to give the sections a purposive interpretation. The purpose is to inform HMRC of transactions in respect of which liability arises and for the taxpayer to self-assess that liability. In Project Blue it was found that HMRC could open an enquiry into a return filed in relation to one of the scheme transactions and issue a closure notice which charged tax pursuant to s75A. That says nothing about the requirement to file a return for the notional land transaction.

Failure to file a return for the notional transaction is relevant for the purpose of penalties and also for time limits in relation to assessments. It is clear that Parliament intended there to be an extended time limit for HMRC to make an assessment where no return was filed for the notional transaction.

We take into account the following factors relied on by Mr Elliott:

Parliament has made provision for an extended time limit, permitting assessments to be made within 20 years where no return for the notional land transaction has been filed. In the context described above, we are satisfied that this was the intention of Parliament in specifically providing that a notional transaction is a notifiable transaction. We do not consider that Project Blue or Brown support any different conclusion.

In Project Blue, the taxpayer had filed a return in respect of the actual transaction whereby PBL acquired the property from the MoD, but not in respect of the notional transaction under s75A. The Supreme Court did not hold that the taxpayer had no obligation to file a return in respect of the notional transaction. Rather, it concluded that it was possible for HMRC to impose liability in respect of the s75A notional transaction by making amendments to the return filed in a closure notice following an enquiry into that return. Indeed, the Supreme Court appears to have acknowledged that even before the amendment to s77 in Finance Act 2008, there was, or at least may have been, an obligation on the taxpayer to file a return for the notional transaction. Lord Hodge stated at [83]:

“HMRC were entitled to inquire into that sale and, on ascertaining that it was a part of a series of transactions which gave rise to a section 75A charge, to amend the return to reflect the tax due on the notional freehold acquisition under section 75A(5). Any obligation on PBL to submit a return in relation to the notional transaction does not limit the scope of HMRC’s power to inquire into the MoD-PBL sale or their power to amend the return under paragraph 23.”

The power of HMRC to amend a return filed in respect of an actual transaction to impose liability in respect of a notional transaction does not undermine the obligation of the taxpayer to file a return in respect of the notional transaction. It was not argued in Project Blue that the return for the actual transaction between the MoD and PBL was in fact a return in relation to the notional transaction so as to justify HMRC’s charge to tax under s75A. Indeed, it appears from [82] of the decision that PBL specifically argued that the equivalent of Return A was not a return relating to the notional transaction. HMRC did not challenge that argument but instead relied on the scope of the enquiry into the return for the actual transaction.

In Brown, Mr and Mrs Brown purchased a property using a SDLT avoidance scheme. They set up a company with sufficient cash to purchase the property. The vendor contracted to sell the property to the company. At the same time as completion of that contract, the company reduced its share capital and distributed the property to Mr and Mrs Brown in specie. The vendor executed a transfer to the company which simultaneously executed a transfer to Mr and Mrs Brown. It was intended that the contract between the vendor and the company would be disregarded by way of sub-sale relief under s45. In the absence of consideration paid by Mr and Mrs Brown for the distribution no SDLT was payable and they were not required to make a return. The company filed a land transaction return claiming sub-sale relief. The Court of Appeal held that a charge did arise under s45 and no sub-sale relief was available.

The Court of Appeal went on to consider the position if sub-sale relief had been available. In those circumstances, Mr and Mrs Brown had accepted that s75A would be engaged. However, they raised a procedural question as to whether HMRC’s determination could impose liability either under s45 or s75A because HMRC had not specified on what basis tax was chargeable. The Court of Appeal held that the scope of the determination was sufficiently broad to impose liability under either provision in circumstances where the determination identified the property and the date of the transaction and did not specify whether it was imposing liability under s45 or s75A. The Court stated at [67] and [71]:

“67.

I cannot see that this makes any difference. In the notional world prescribed by section 75A(4) Mr and Mrs Brown still acquire the freehold. That acquisition gives rise to a duty to deliver a land transaction return. Since Mr and Mrs Brown delivered no land transaction return, HMRC were entitled to make a determination of the amount of SDLT chargeable in respect of the transaction. The “transaction” is the notional transaction consisting of Mr and Mrs Brown’s acquisition of the freehold on a disposal by Mr Hamm. But it is still an acquisition of the same freehold. HMRC’s determination related to the acquisition of 9 Earlswood. That is precisely what Mr and Mrs Brown acquired, either in the real world, or under the notional land transaction. Either way, I consider that it was within the scope of HMRC’s determination.”

“71.

In the present case, the determination did no more than to identify the acquisition by Mr and Mrs Brown, the property acquired, and the date on which the acquisition took place. It did not set out any legal analysis; and in my judgment on the basis of this determination HMRC were free to advance any legal analysis which justified the determination. It may be that on different facts HMRC make a determination in prescriptive terms, which will cut down their options. But that will have to wait for a case in which it matters.”

Brown was concerned with the scope of HMRC’s determination in the same way that Project Blue was concerned with the scope of HMRC’s enquiry and closure notice. It provides no support for the Appellants’ proposition that a land transaction return delivered in relation to the actual transaction which has been disregarded can be treated as a return in relation to the notional transaction.

What we must do is consider whether Return A can properly be construed as a return of the notional land transaction. In our view the FTT was wrong to conclude at [166] that Return A was capable of being construed as a return for the notional transaction. Mr Chacko is right to observe that Return A involves the same parties, property and conveyance of the freehold as the notional transaction. Nonetheless, Return A is substantially different in substance to a return for the notional transaction. In particular, a claim to sub-sale relief was made which could not apply to the notional transaction. The tax self-assessed was therefore nil whereas in a return of the notional transaction the correct amount of tax on the basis of the information in the return should have been self-assessed (see s76(3)(a)). The Appellants’ agent also sent a letter to HMRC with the return specifically asserting that s75A did not apply. In those circumstances, Return A cannot be construed as a return in relation to the notional transaction.

It was suggested by Mr Elliott that the Appellants could have avoided the 20-year extended time limit for a discovery assessment by making a protective return for the notional transaction (see Redmount Trust Company Limited v HM Revenue & Customs [2023] UKUT 00068 (TCC) at [43] and [53] – [57]). It is not clear to us that a protective return which was inconsistent with another return submitted by the appellants could have been filed. It does occur to us that the Appellants could have made a return of the notional transaction, self-assessed the tax payable and later amended the return or applied for repayment of tax considered to have been overpaid in connection with the notional transaction. These possibilities were not canvassed during the hearing. In the event, it is not necessary for us to determine what if any options were available to the Appellants. The fact that the Appellants might be unable to avoid the 20-year time limit where there may be a different legal analysis to the one they have relied on, does not mean that they should be treated as complying with an obligation where they have plainly not complied with that obligation. The effect is simply that HMRC have an extended time limit in which to collect the correct amount of tax. It seems to us that this result accords with the purpose of the provisions.

Mr Chacko also relied on certain extra statutory materials. These included the Explanatory Notes to Finance Bill 2008, and extracts from Hansard said to relate to the amendment of s77 in 2008 and Parliament’s intent at that time as to the need for a land transaction return for the notional transaction. In our view those materials do not assist in construing the plain and natural meaning of the statutory provisions and it is not necessary for us to consider them further.

In his skeleton argument, Mr Chacko also suggested that paragraph 31(2A)(b) was not engaged because no loss of tax was attributable to a failure to disclose the transaction to HMRC. He did not really develop this argument in his oral submissions. In any event, the question is not whether the loss of tax was attributable to a failure to disclose a transaction, but whether it was attributable to a failure to comply with the obligation to file a return in respect of the notional transaction. In our view, the loss of tax could clearly be attributed to the Appellants’ failure to file a return in relation to the notional transaction which would have included a self-assessment of the tax payable on that transaction.

For all these reasons we are satisfied that the FTT erred in law in relation to the Assessment Appeal. It wrongly concluded that Return A was a return in respect of the notional transaction under section 75A. We allow HMRC’s cross-appeal. The error of law was material and the Decision in relation to the Assessment Appeal is set aside. We re-make the decision confirming HMRC’s discovery assessments as validly made within the extended time limits and the SDLT assessed as lawfully recoverable from the Appellants. The assessments form an additional or alternative basis to the closure notices by which the Appellants are liable to pay SDLT.

For the reasons set out above, the Appellants’ appeal against the Decision is dismissed and HMRC’s cross-appeal is allowed.