The Court of Appeal has upheld retrospective legislation closing a stamp duty tax loophole that was being abused.

The primary issue in R (on the application of APVCO 19 Ltd) v HM Treasury [2015] EWCA Civ 648; [2015] PLSCS 196, which began life in the courts here  was whether retrospective tax legislation was incompatible with a taxpayer’s rights under Article 1 of the Protocol of the European Convention on Human Rights (protection of property). The taxpayers had embarked on what were described as aggressive tax avoidance schemes, which took advantage of sub-sale relief, to allow them to escape stamp duty land tax on property purchases. Did retrospective legislation enacted to put paid to such schemes violate the taxpayers’ human rights because the changes had deprived the taxpayers of “possessions”, as that term is to be construed for the purposes of Article 1? If so, were the changes lawful because they were proportionate, and neither arbitrary nor unforeseeable?  The taxpayers referred the Court of Appeal to the government’s protocol on unscheduled changes in tax law. This states that changes that take effect retrospectively will “be wholly exceptional” and will normally apply where there is “a significant risk to the Exchequer”. The court dismissed the taxpayers’ arguments, which were based on the premise of absence of liability until the retrospective legislation had been enacted. The court considered that this depended on the application and interpretation of the pre-existing legislation, which was always contentious. The retrospective provisions had deprived the taxpayers of an argument that they were not liable to pay stamp duty land tax, or of a defence to HMRC’s claim. However, a legal argument, whatever its merits, is not a possession for the purposes of Article 1. The taxpayers’ claim that the legislation closing the tax avoidance loophole was an interference with, or had deprived them of, the money that would have to be used to pay the tax fell onto equally deaf ears. The court went on to consider whether Article 1 had been infringed, just in case it was engaged. The court noted that the government had, in speeches and announcements, made it perfectly clear that stamp duty land tax avoidance schemes that took advantage of sub-sale relief would not be tolerated, and that retrospective legislation would be used – and indeed had been used – to counter them. The Protocol was simply a statement of intent and the need to put paid to further abusive schemes meant that the situation was far from normal. Furthermore, there were significant risks to the Exchequer, even though the estimate of the tax losses caused by the scheme was no more than £7m. The risk arose from allowing taxpayers to think that the government did not mean what it said and that they could get away with minor variations on tax avoidance schemes that had already been closed down, if there was still some lacuna in the law. The government had taken a strong line because it was unfair and morally repugnant for some to avoid paying stamp duty land tax, which others had to pay.  The retrospective changes were not arbitrary or unforeseeable and the government had struck a fair balance between the public interest, which weighed more heavily in this case, and the protection of individual fundamental rights. Allyson Colby is a property lawyer