UK and International Tax news
Supreme Court Decision In SDLT Project Blue Case
Tuesday 26th June 2018
The Supreme Court has recently issued its decision in the appeal from the Court of Appeal concerning the liability to SDLT and the application of s.75A FA2003.
In December 2014, the UT issued its decision in the case of Project Blue Ltd (formerly Project Blue (Guernsey) Ltd v HMRC) [2014 UKUT 0564], which was the first case to be heard on the statutory interpretation of s.75A FA2003.
PBL had agreed to buy land [the old Chelsea Barracks] from the MOD for £959m and simultaneously sold it on to MAR, a Qatari bank, which provided Sharia compliant financing, for a price of £1.25bn to cover the acquisition cost plus further building costs. MAR leased the land back to PBL. There were also put and call options to provide for the eventual transfer of the property back to PBL.
PBL’s view was that there was no SDLT payable on its initial purchase or the subsale to MAR given s.45 and s.71A FA2003.which provides for an exemption from SDLT for the style of alternative financing in the later steps of the transaction.
In 2013, the FTT found that there was a charge under s.75A on PBL of 4% of £1.25bn, being £50m. Both sides appealed to the UT on whether s.75A imposes a charge and if it does, who is liable and for how much.
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.
The UT found that SDLT was due, under s.75A, on £959m and payable by PBL although this was not a unanimous decision. Mr Justice Morgan was the presiding judge and his vote prevailed. Whilst Judge Howard Nolan agreed that it was PBL that was liable to the SDLT, he considered that the tax should have been 4% on £1.25bn.
The CA however held that MAR was liable to pay SDLT on completion of its own contract, with an SDLT charge of £50m [being 4% of £1.25bn] and s.75A did not apply. HMRC had closed its enquiry into MAR’s SDLT return and was out of time to reopen it. Given the CA decision, HMRC appealed to the SC.
The principal question in the appeal to the SC was whether PBL was due to pay SDLT of £50m on its purchase from the MoD. On analysis, the SC held that the sub sale relief provisions did not prevent the application of the relief for alternative property finance so the amount of SDLT payable in respect of each of the transactions was nil.
However, the SC brought the anti avoidance rule in s.75A back into play and, looking at the whole scheme and the purpose of s.75A, concluded that the relevant ‘notional transaction’ to be assessed involved the MoD as vendor, and PDL as the purchaser of the relevant chargeable interest in land being the leasehold interest from MAR. The chargeable consideration [being the largest amount given by any one person under the scheme] was the £1.25bn paid by MAR to PBL and this was greater than that payable in respect of the actual scheme [nil]. Therefore, SDLT of £50m was due under s.75A.
This decision is of major concern because it would appear that it allows HMRC to postulate a ‘notional arrangement’ where the chargeable consideration payable exceeds the amount that would otherwise be payable and there is no avoidance motive required.
If you would like to discuss this decision in more detail, please contact Keith Rushen on 0207 486 2378.