Project Blue Ltd (PBL), backed by a Qatari sovereign wealth fund, paid the Ministry of Defence £959m for the site in 2007, using a form of Shari’a -compliant financing known as Ijara finance. PBL obtained finance from a Qatari Bank, Masraf al Rayan (MAR), which specialises in Islamic finance, under a sub-selling and lease back arrangement.

In 2008, PBL lodged a tax return in relation to the contract between it and the MoD and claimed that there was no liability to SDLT because of the ‘sub-sale relief’ provision in s45(3) of the Finance Act 2003 (FA 2003). A return lodged by MAR relating to the sale agreement between PBL and MAR claimed ‘alternative property finance relief’ under s71A of FA 2003. Section 71A relief was also claimed in relation to the lease by MAR to PBL on 31 January 2008. Consequently, the parties to the scheme transactions claimed that nobody incurred a liability to SDLT. 

There then followed a series of legal challenges by HMRC over the issue of whether SDLT was due on the arrangement, which did not involve the payment of interest, with the case passing from the First Tier Tribunal to an Upper Tribunal and the court of Appeal. HMRC's case was that the anti-avoidance provisions in section 75A of FA 2003, as introduced by the 2007 Finance Act, created a charge to SDLT in the case.

In 2016 the Court of Appeal found in favour of the Qatari developers, declaring that HMRC should have sought to have MAR pay the SDLT, as the bank was the actual purchaser.

Now the Supreme Court has allowed HMRC’s appeal on this issue. [Project Blue Limited vs Commissioners for Her Majesty’s Revenue and Customs [2018] UKSC 30].

It held that the Upper Tribunal was correct in stating that PBL was the ‘vendor’ under s 71A(2). Therefore, but for s 75A of the 2003 Act, the combination of the operation of sub-sale relief under s 45(2) and (3) and the exemption under s 71A(2) relieved the sale by the MoD to PBL and exempted the sale by PBL to MAR from a charge to SDLT. S 75A was enacted by Parliament to close such lacunas.

Various reasons support this finding. For instance, there was nothing in s 71A that suggests that the exemption in s 71A(2) would not apply when the sale by the customer to the financial institution is a sub-sale which takes place contemporaneously and in connection with the customer’s purchase of the major interest in land. The interpretation is consistent with the aim of s 71A, which the Upper Tribunal identified, of seeking to equate Ijara financing with conventional lending in the UK by taxing the purchaser of the property and exempting the lender.

A spokesman for HMRC said: ‘We are delighted with the Supreme Court’s decision – a result that will bring in millions of pounds for public services. This latest victory adds to a series of wins against those who have tried to avoid stamp duty land tax and it goes to prove that these schemes don’t work.’

A spokesman for PBL said the company acknowledges and respects the court’s decision. She added: ‘Project Blue Ltd has always fully complied with all UK taxation matters and will continue to do so.’

Project Blue Limited vs Commissioners for Her Majesty’s Revenue and Customs [2018] UKSC 30 is here: 

Report by Pat Sweet