Case: SDLT: land sale caught by anti-avoidance rule of FA 2003, s. 75A
FTT (Tax Chamber)
Decision released 18 April 2019
Stamp Duty Land Tax (‘SDLT’) – Tax Avoidance – Assessments in the alternative on both appellants under Finance Act 2003 (‘FA 2003’), s. 75A – Whether FA 2003, s. 75A applied to series of transactions – Yes – Quantum of chargeable consideration – Whether FA 2003, s. 75C(8A) applied to disapply transfer of partnership interest provisions of FA 2003, Sch. 15, Part 3 – No – Identification of ‘P’ and ‘V’ in FA 2003, s. 75A – Appeal of first appellant upheld – Appeal of second appellant dismissed
Hannover Leasing Wachstumswerte Europa Beteiligungsgesellschaft mbH & Anor  UKFTT 0262 (TC)
In a complex series of transactions, a commercial investment property in London under the ownership of the Greycoat group of companies, 30 Crown Place (‘30CP’), was sold by an English limited partnership to a German company (Hannover Leasing Wachstumswerte Europa Beteiligungsgesellschaft mbH – ‘the first appellant’) by way of the transfer of units in a unit trust and then transferred to a German limited partnership (Hannover Leasing Wachstumswerte Europa VI GmbH & Co KG – ‘the second appellant’). The property was then sold on to a third-party purchaser.
Setting aside the final sale to the third-party, there were essentially four steps in the series, stripping aside the financing transactions. All four steps took place in 2011.
Step 1 – an English limited partnership (‘the Greycoat Partnership’) sold the freehold of 30CP to an unauthorised Guernsey unit trust (‘GPUT’), of which the sole limited partner of the Greycoat Partnership was the trustee. The unitholders in GPUT were ‘GCLOD’ (a Greycoat company) (99.7%) and ‘GUL’ (another Greycoat company) (0.3%). The profits of the Greycoat Partnership were allocated as to 99% to the trustee, i.e. to GPUT, and 1% to the general partner, yet another Greycoat company. The consideration for the sale was £138,850,000. The freehold of 30CP was vested in the trustee of the GPUT and a nominee company.
Step 2 – the units in the GPUT were transferred by GCLOD, which now held 99.8%, to the first appellant and by GUL, which now owned 0.2%, to Merope, a German management company. The consideration for the transfer of the units was £136,291,031. The freehold of 30CP remained vested in the trustee and the nominee company.
Step 3 – the GPUT was dissolved and an in specie distribution was made of 30CP to the first appellant in respect of all but one of its units; the remaining assets of the GPUT were to be distributed to the two unitholders pro rata. The freehold was therefore now owned by the first appellant.
Step 4 – the second appellant was established as a German limited partnership with a limited-liability company (GmbH) as limited partner, in this case, the first appellant, with a 99.9% interest, in respect of which it contributed its interest in 30CP. The remaining 0.1% interest was taken by another Hannover entity as general partner. The freehold was thus now in the ownership of the second appellant.
As regards SDLT, a land-transaction return was filed in respect of Step 1, stating a consideration of £1,388,850 (representing the 1% share going to the general partner), on which tax of £55,540 (4%) was paid, on the basis that 99% of the value of the property did not change hands. Returns were also filed in respect of Steps 3 and 4, but no tax was paid, as the stated consideration in both cases was below the SDLT threshold (which was £150,000 for commercial property at that time).
HMRC initially opened an enquiry into the returns for Steps 1 and 3 but closed them without making corrections. Instead, it raised assessments in the alternative on both the first and second appellants under FA 2003, s. 75A for tax on the full amount of the highest consideration passing, i.e. on £138,850,000, being tax of £5,554,000.
The grounds of appeal were that:
(1)The purpose of FA 2003, s. 75A was to counteract abusive tax arrangements. The appellants, by contrast, had merely taken advantage of a fiscally attractive option deliberately offered by Parliament – namely that the transfer of shares in a company or of units in a unit trust is not liable to SDLT, even where the underlying assets of the company or unit trust consisted of interests in land. The transactions in question had a genuine commercial purpose and did not involve tax avoidance.
(2)As to the transfer of ownership from the first appellant to the second appellant (Step 4), since the second appellant (a partnership) was transparent for tax purposes under FA 2003, Sch. 15, para. 2, 99.9% of the ownership of 30CP remained with the first appellant. Only 0.1% of the property passed out of its ownership, being the percentage transferred to the general partner.
(3)If FA 2003, s. 75A did, nevertheless, apply, FA 2003, s. 75C(8A) ‘switched off’ the provisions of FA 2003, Sch. 15, Part 3, which impose a special charging regime for land transactions between partners and a partnership. Also, the first step in the scheme transactions contemplated by FA 2003, s. 75A would have to be the sale of the units (Step 2), and not the sale by the Greycoat Partnership (Step 1), as 30CP was already deemed to be owned by the GPUT. Under FA 2003, s. 75B(1), the consideration attributable to the transfer of the 99% interest held by GPUT had to be ignored, as it was incidental to the transfer of the 1% interest by the general partner. Furthermore, FA 2003, s. 75C(1) provided that a transfer of shares or securities was to be ignored if it would otherwise constitute the first in the series of scheme transactions contemplated by FA 2003, s. 75A, as the appellants maintained.
The Tribunal dismissed the argument that the application of FA 2003, s. 75A required the existence of a tax-avoidance scheme or the exploitation of loopholes in the statutory provisions. As had been made clear by the Supreme Court in Project Blue  BTC 23, all that was necessary was that there should be a series of transactions involved in connection with the disposal and acquisition of a chargeable interest and that that series of transactions effected by the parties resulted in a reduced liability to tax when compared with the liability resulting from the notional transaction posited by that section, which was the case here.
As to the series of transactions identifiable by FA 2003, s. 75A, those were the Steps 1 to 4 referred to earlier. On the facts, they were a pre-ordained series of transactions that had as one of their main purposes the saving of SDLT. The elements in each of those steps were commercially interdependent and had been intended to take place in the order in which they had taken place. In particular, it had always been intended that the property be transferred out of the Greycoat Partnership to the trustee of the GPUT before the units in the trust were sold to the first appellant (hence Step 1 was the first step, and not Step 2) and that after the sale the property would be distributed to the first appellant. As to the P and V posited by FA 2003, s. 75A, V, the vendor, was the Greycoat Partnership and P, the ultimate purchaser, was the second appellant, as had always been intended. The notional land transaction was thus the transfer of the property from the Greycoat Partnership to the second appellant.
Furthermore, the disapplication of FA 2003, Sch. 15, Part 3 (the partnership charge) by FA 2003, s. 75C(8A) referred to the notional land transaction only. Since that notional transaction did not involve the transfer of a chargeable interest between a partnership and its partners, the disapplication was not in point, hence the transfer was of the whole of the interest in the property. Under FA 2003, s. 75A(5), the chargeable consideration was the largest amount of consideration passing, which was £138,850,000, tax on which (at 4%) was £5,554,000. Since credit had to be given under FA 2003, s. 75C(10) for tax paid in respect of the disregarded transactions (£55,540), the tax payable by the second appellant was £5,498,460.
The appeal by the first appellant was therefore upheld and the appeal by the second appellant was dismissed.
The FTT appears to have come to the correct decision on the facts. As the appellants themselves conceded, the transactions were always viewed as a whole, to take place in a predetermined sequence and were commercially interdependent. What is more, they stated in evidence it was only the prospect of saving SDLT by purchasing the units in the unit trust that had enabled the Hannover group to make its increased, final offer for the property. In any case, after Project Blue, it seems trite law that the application of FA 2003, s. 75A does not require a conscious tax-avoidance motive.
As part of their submissions, the appellants cited HMRC Guidance on the application of the targeted anti-avoidance rule for group relief under FA 2003, Sch. 7, para. 2(4A), in which it is stated, inter alia, that ‘HMRC acknowledge[s] that deciding to sell shares rather than land so as to pay less tax or SDLT … represents a straightforward legislative choice and is not, itself, objectionable’. In the Tribunal judge’s opinion, this guidance, insofar as it related to FA 2003, s. 75A, was wrong, but allowed that there might be a case for applying for judicial review on the grounds of legitimate expectation.
For the treatment of FA 2003, s. 75A, see In-Depth at ¶20-300.
For a discussion on the Project Blue case, see In-Depth at ¶20-410.