Sub-Sale relief from Stamp Duty Land Tax or Tax Avoidance Scheme?

The First Tier Tribunal (Tax Chamber) case of (1) Crest Nicholson (Wainscott) Limited (2) Crest Nicholson (South East) Limited (3) Crest Nicholson Operations Limited –v- The Commissioners for Her Majesty’s Revenue & Customs, [2017] UKFTT 134 TC05628 determined that South East had to pay circa £1.3m for Stamp Duty Land Tax (“SDLT”).

The facts

On 31 October 2006, the First Respondent (“Wainscott”) entered into agreements for the purchase of development land in Kent (“the Land”). The Land was purchased from three independent Sellers (“the acquisition contracts”) and the total purchase price amounted to £32,382,120.

On the same day, the board of directors of Wainscott resolved to allot and issue 32,382,120 Ordinary £1 shares to the Second Respondent (“South East”) and South East transferred the price of £32,382,120 to Wainscott’s account.

In December 2006, Wainscott resolved to reduce its share capital by way of a distribution in specie of the right to call for the property transfers. Wainscott then executed three Deeds of Assignment transferring to South East the benefit of Wainscott’s rights under the acquisition contracts. Three Deeds of Transfer were executed naming South East as the Transferee and Wainscott as Assignor.

It was initially asserted that South East had acquired the Land by way of three back to back sub-sale transfers, that no consideration had been paid by South East and that the three transfers were ignored for the purpose of Stamp Duty Land Tax (“SDLT”) by virtue of s45 (3) of the Finance Act 2003 (“FA”) (as it then was).

South East had also entered into a Deed of agreement dated 24 October 1991 (“Deed”) with the Third Respondent, Operations, and had asserted that it was acting as agent or nominee for Operations in acquiring and holding shares in Wainscott and taking a transfer of the legal title to the Land.

In March 2011, HMRC issued a determination that South East was liable to SDLT in the amount of £1,295,284.80 (calculated at 4% on the consideration of £32,382,120).

A few days later, it issued a determination for the same amount to Wainscott and on 12 October 2011, it sent a discovery assessment to Operations assessed at the same amount of SDLT.

The Respondents appealed.

The Respondents’ Arguments

  • Wainscott contended that although it had entered into the acquisition contracts, it had assigned its rights under them to South East and that as a result the sub-sale relief provisions of s45 FA 2003 (as they then stood) were engaged and so it was not liable for the SDLT.
  • South East relied upon the Deed to argue that it had acted as nominee and/or bare trust for Operations. Therefore, any liability to SDLT that would otherwise fall on it, fell to be liability of Operations and so South East was not liable for the SDLT.
  • Operations, whose liability was contingent on South East’s argument being successful, contended that the discovery assessment was defeated by a procedural defect i.e. it was out of time because it more than 4 years after the effective date of the transaction to which it related and so Operations was not liable for SDLT.

The decision of the First Tier Tribunal (Tax Chamber)

Dealing with the appeals in turn and starting with Wainscott, contrary to the position adopted by HMRC, the Tribunal was satisfied that s45 of the FA was engaged. The effect of s45 (3) FA was that the original contract could be disregarded. As a result, Wainscott was not found liable for the SDLT and the determination served on it was set aside.

In relation to South East, the Tribunal examined the Deed and found that the terms of the declaration of trust did not extend to the Land or any property acquired after the commencement date defined in the Deed. Nor was the court persuaded that South East held the Land as bare trustee or as nominee for Operations.

The Tribunal concluded that South East was the purchaser for the purpose of s45 (3) of the FA and was therefore liable for the SDLT of circa £1.3m resulting from its acquisition of the Land. As a result, Operations Appeal also succeeded, although the Tribunal did find that HMRC had met the time limit.

The Judgment was handed down on 1 February 2017 and can be accessed here.

This case follows HMRC’s earlier successes in challenging similar SDLT tax avoidance schemes and is consistent with HMRC’s approach generally in challenging tax avoidance schemes.

Further information on tax avoidance and on how Capital Disputes Finance may help you, can also be found here.

If you were advised to enter into such a scheme and have received a notification from HMRC and would like to speak to our team, please contact Stephen Meade, Philip Jones or Andrew Brown.