The First-tier Tribunal has dismissed an appeal against a determination that a tax avoidance scheme (“the scheme”) was ineffective in avoiding SDLT of £9,750 on the property that the appellant occupied as his home. On the same date that the appellant acquired the property for £325,000, he purported to “sub-sell” the property for £10,000 to a trust with completion in 124 years. On the same date the trust contracted to sell the property to a third party. The appellant had also argued that there had been undue delay on HMRC’s part (Olufote v HMRC  UKFTT 130 (TC)).
The scheme was a reasonably conventional sub-sale scheme that sought to exploit perceived drafting inadequacies in FA 2003, s. 45. Section 45 applies, inter alia, where following the entry into a contract for the purchase of a property (“the original contract”), the purchaser then contracts to sub-sell the property to a sub-purchaser (“the second contract”) and completion or substantial performance of the contracts takes place at the same time. In these circumstances the original contract is disregarded and SDLT is charged only on the consideration that passes under the sub-sale contract.
HMRC challenged the scheme on two grounds:
- if s. 45 was construed purposively and then applied to the facts of the case reviewed realistically, it would not apply in the manner contended for by the appellant; or
- the provisions of FA 2003, s. 75A should apply so as to treat the original contract and its completion as a notional land transaction that is subject to SDLT on the consideration payable for all the scheme transactions.
The tribunal agreed that as the scheme was clearly one of tax avoidance it was correct to interpret the legislation purposefully and “not just to consider the particular steps individually but to consider the Scheme as a whole”.
It also noted that “we think it is of interest to the SDLT community that HMRC’s detailed submissions are in the public domain.”
The tribunal judged that:
“the aim of what became section 45 was to place the taxation burden on the person who has the use and enjoyment of the property, and to afford relief to someone who has no more than a fleeting interest in the land. … The Scheme is clearly an anti-avoidance scheme, designed to exploit perceived shortcomings in the drafting of section 45, and is intended to relieve the real purchaser, in this case the appellant who has the use and enjoyment of the Property, from a charge to SDLT. This is clearly outside the purpose for which section 45 was designed … Section 45 was never intended to confer relief where the intermediate purchaser and sub-purchaser, were the same person.”
Section 75A is a targeted anti-avoidance provision, designed to combat the avoidance of SDLT with no requirement to consider motive. The facts of the case were caught by s. 75A so the second contract, as a land transaction, should be disregarded and instead there was a notional transaction for which the chargeable consideration was the £325,000 paid by the appellant under the first contract, and the £10,000 paid by the trust under the second contract.
The 10-year delay
“ … the fundamental issue is whether any such delay has led the appellant to suffer prejudice in pursuing his appeal. We cannot see that he has. … The enquiry was opened in good time, the closure notice was valid, the appellant made no application to the tribunal for the enquiry to be closed. There is no concept of staleness for discovery assessments, and there is no justification for reading the concept of staleness into enquiries or closure notices, against a determination.”
Related content from Claritax Books
Stamp Duty Land Tax is a well-written, user-friendly guide to the complexities of SDLT, written for accountants, solicitors and other tax professionals, with plenty of worked examples. Topics covered include basic principles, leasehold transactions, partnerships, trusts, reliefs, anti-avoidance legislation and recent tribunal decisions. Full reference is made throughout to relevant legislation, case law and guidance from HMRC.