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UT Hears Appeal In SDLT Avoidance Case
Wednesday 20th August 2025
The UT has recently heard an appeal in an SDLT avoidance case involving procedural issues relating to valid enquiry notices and discovery assessments.
In G Scatola and others v HMRC [2025 UKUT 00156 TC], the Appellants were three pairs of unconnected taxpayers and their appeals were lead cases which involved marketed SDLT avoidance arrangements in relation to the acquisition of residential properties in 2010 and 2011.
It was accepted by the Appellants prior to the hearing of the FTT appeal that the arrangements failed to achieve their objective of avoiding SDLT on the relevant acquisitions. However, among other issues considered, there were two procedural issues contested before the FTT, being:
(1) whether HMRC had taken the necessary steps to impose liability on the Appellants by opening enquiries in 2011 under para 12 Sch 10 FA2003 and then issuing closure notices in 2017 under para 23, and
(2) the issue of discovery assessments in 2017 under para 28 Sch 10 FA2003 on a protective basis alternative to the closure notices.
The arrangements implemented by the Appellants were intended to replicate the transactions ultimately considered in Project Blue Limited v HMRC [2018] UKSC 30. The effect of the judgment in Project Blue was that SDLT was due on a notional transaction effecting a purchase of the property by the appellants from the vendor on which SDLT was due pursuant to the anti-avoidance provision in s75A FA 2003.
The Appellants entered into a contract to purchase a property from an independent third-party vendor with the full purchase price to be paid on completion. The Appellants agreed to sell the property to a Guernsey protected cell company [Vale] which was stated to be a finance institution, at the same price, although Vale was a special purpose vehicle established for the sole purpose of the arrangements. Vale agreed to grant a 999-year lease of the property back to the Appellants for a premium equal to the purchase price, with an option to purchase the freehold reversion for £1. The Appellants occupied the property from the date of completion of the contract with the vendor.
Three SDLT land transaction returns were filed as follows:
Return A was filed by the appellants for their purchase of the freehold from the vendor, claiming sub sale relief under s45(3) FA03 and showing no SDLT due.
Return B was filed by Vale for its acquisition of the freehold from the appellants by way of sub-sale, and claimed alternative finance relief under s71A FA03.
Return C was filed by the appellants in respect of their acquisition of the lease, also claiming alternative finance relief with no SDLT due
In relation to issue (1), the FTT held that HMRC had lawfully opened enquiries in relation to Return A and Return C by giving notice to the Appellants and their agents which were sufficient to satisfy the requirement in para 12.
In relation to issue (2), HMRC relied on the 20 year extended time limit for making a discovery assessment in para 31(2A)(b) Sch 10 FA 2003 which applies where the taxpayer has failed to make a return. It was HMRC’s case that the Appellants failed to make a return in relation to the notional transaction pursuant to s75A. However, the FTT found that the protective discovery assessments were out of time as the extended time period did not apply. It found that Return A met the requirements of a return for the notional transaction under s75A FA 2003 and there had been no failure to file a return.
The Appellants appealed to the UT against the decision in relation to the validity of the enquiry notices and hence the closure notices issued by HMRC, on two grounds:
Ground 1: The FTT erred in its approach to the validity of the notices, holding that a notice could be valid even if it contained ambiguities that could not be resolved.
Ground 2: The FTT erred in holding that a reasonable recipient of the enquiry notices in context would have understood HMRC to be opening enquiries into both Return A and Return C. The relevant letters relied on by HMRC were ambiguous and therefore ineffective.
In HMRC’s response, in addition to opposing the Appellants’ grounds, HMRC sought to uphold the FTT’s decision on an alternative ground. They said the intended effect of the relevant notices of enquiry was reasonably ascertainable by the persons to whom they were directed and therefore, applying s83(2) FA 2003, they were not ineffective.
HMRC cross-appealed to the UT on a protective basis against the FTT’s decision that the assessments were made out of time.
The UT held that they agreed with the FTT’s reasoning and conclusion that a reasonable taxpayer receiving HMRC’s June 2011 letters would have had no doubt that HMRC were intending to give notices of enquiry into both returns
The UT however held that the FTT erred in law in relation to the Assessment Appeal, wrongly concluded that Return A was a return in respect of the notional transaction under section 75A, allowed HMRC’s cross-appeal and confirmed HMRC’s discovery assessments as validly made within the extended time limits. The assessments formed an additional or alternative basis to the closure notices by which the Appellants were liable to pay SDLT.
If you would like more detail on the above decision, please contact Keith Rushen on 0207 486 2378.
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