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HMRC Updates Guidance On Section 75A Finance Act 2003
Friday 31st January 2020
HMRC has recently updated its guidance on the application of section 75A Finance Act 2003 anti avoidance legislation.
In 2019, the FTT considered the SDLT case of Hannover Leasing v HMRC which concerned the application of the s.75A FA 2003 to the purchase by a German partnership of UK property held by a UK partnership.
This followed the 2018 Supreme Court decision in the Project Blue case in which the SC held that HMRC could postulate a ‘notional arrangement’ where the chargeable consideration payable exceeded the amount that would otherwise be payable and there was no avoidance motive required.
S.75A applies where one person (V) disposes of a chargeable interest in land and another person (P) acquires either it or a chargeable interest deriving from it, a number of transactions are involved in connection with the disposal and acquisition, and the sum of the SDLT payable in respect of the scheme transactions is less that the amount that would be payable on a notional land transaction effecting the acquisition of V’s interest by P.
In the Hannover Leasing case, the purchaser [Hannover] wished to acquire UK commercial property and hold it in a German partnership. The seller [Greycoat] held the property in a limited partnership of which a unit trust was the main partner. Hannover did not wish to acquire the partnership so Greycoat carried out some restructuring steps which included selling the property out of the partnership to the unit trust which was then bought by Hannover. The property was then extracted the property out of the unit trust.
This typical acquisition route was followed because, according to Hannover, none of the planned steps triggered a charge to SDLT because of the SDLT partnership provisions, the distribution exemption and the treatment of unit trusts for SDLT purposes.
Hannover argued that there were no ‘scheme transactions’ because the property transfers had been taxed appropriately under the relevant legislation, ignoring s.75A, and this was also included in HMRC guidance. Hannover considered that s.75A should be read purposively.
However, the FTT found that all the steps were ‘scheme transactions’ and pre-ordained, contractually or commercially. Critically there was a ‘notional transaction’ between the partners in the Greycoat partnership and the partners in Hannover that fell to be taxed under s.75A.
The consideration for this notional transaction [per s.75A] was the highest amount paid or received for any of the scheme transactions [being £139m] and this was subject to SDLT.
HMRC has now updated its guidance on s.75A and it would appear that s.75A could be seen as a special charging rule available to HMRC to be applied even to commercially motivated restructurings with no clear tax avoidance motive.
If you would like to discuss this decision in more detail, please contact Keith Rushen on 0207 486 2378.
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