Stamp duty land tax: anti-avoidance rule may apply even in commercial transactions
The First-Tier Tribunal decision in Hannover Leasing v HMRC published in May 2019 is the first substantive stamp duty land tax decision following the Supreme Court’s 2018 ruling in Project Blue.
Following the reasoning in Project Blue, the judge made clear that section 75A of Finance Act 2003 does not require there to be an anti-avoidance motive. Rather, it applies where the objective tests are met.
Introduction – Section 75A of FA 2003 – Hannover Leasing v HMRC
Before the Supreme Court’s 2018 Project Blue decision, section 75A of FA 2003 was thought to be an anti-avoidance provision. The judgement in the Supreme Court made clear that this is not the case. The provisions apply if their conditions are met, regardless of the presence of any avoidance motive or lack of. However, this was established in the context of an avoidance case in which one might expect the courts to take a hard-line approach.
More recently the FTT decision in Hannover Leasing reaffirmed the decision in Project Blue – In this case, it was accepted that the structures and transactions entered into were common and commercial.
The case involved the acquisition of property by a German fund from a structure involving ownership of the property by the German equivalent of limited partnership which was owned by a unit trust.
Where does Section 75A apply?
Section 75A applies where:
- One person disposes of a chargeable interest and another person acquires it;
- A number of transactions (including the disposal and acquisition) are involved in connection with the disposal and acquisition (‘the scheme transactions’);
- The sum of the amounts of SDLT in respect of the scheme transactions is less than the amount that would be payable on the notional transaction between the vendor and purchaser.
It applies where there is a land transaction been a vendor and purchaser and a number of (connected scheme) transactions are inserted to execute that transaction with result that the total SDLT ordinarily payable is less than would be for a direct sale between the vendor and purchaser.
The key arguments
Both parties agreed that section 75A was to be interpreted purposively – this seems to have become the norm in tax cases. This involves seeking to understand what the provision was designed to tax (or relieve) and determining whether the transaction(s) in question fit that description.
If Hannover Leasing could establish that the transaction in question was not within the remit of section 75A then the argument followed that the transactions had been appropriately taxed with section 75A being ignored.
As such, Hannover Leasing submitted that section 75A was introduced to catch a range of tax avoidance schemes and prevent unintended tax losses. However, in recognising that an avoidance motive is irrelevant, Hannover Leasing put forward that the correct approach is to question whether the ‘tax saving’ envisaged in section 75A ran contrary to the scheme of SDLT.
If so, only then could section 75A be invoked.
It was argued that Hannover Leasing merely made use of a choice afforded by the legislation, bearing all the economic and legal consequences of that choice, with those choices being taxed appropriately within the scheme of SDLT – i.e. the tax saving did not run contrary to the scheme of SDLT to produce an ‘unintended’ tax saving and, therefore, section 75A should not apply.
The argument from HMRC was that the purpose of section 75A is self-defined and applies the objective tests within the body of the section are met. It was intended to be interpreted broadly, with the provision for an order to be made to exclude certain commercial transactions.
The judge dismissed the taxpayer’s arguments branding them paradoxical and circular. The claim that section 75A somehow sits outside the scheme of SDLT and should only be invoked when the other provisions do not produce a correct outcome is absurd.
Section 75A forms part of the SDLT legislation and Parliament’s intention as to when the provision should apply is written within the section – this section sits within the overall scheme of SDLT and will be invoked as and when those conditions are met.
In this case, they were.
Unlike Project Blue, Hannover Leasing concerned what was a fairly routine commercial arrangement and may therefore result in concern among others undertaking otherwise commercial transactions.
HMRC’s success in the case may embolden them to scrutinise other more routine cases. However, a First-Tier Tribunal decision is not a binding one and such decisions are based on the facts before the tribunal judge.
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