Brown and another v Commissioners of HM Revenue and Customs

Taxation – Stamp duty land tax – Residential property – Sub-sale relief – Appellants acquiring house as part of scheme to avoid stamp duty land tax – Company reducing share capital and transferring house to appellants on distribution in specie – Respondents issuing notice of determination – Notice upheld on appeal – Appellants appealing – Whether appellants liable to SDLT – Appeal dismissed The appellants acquired the freehold of a house at 9 Earlswood, Cobham, Surrey as the last step in a series of pre-planned steps in a scheme marketed specifically for the avoidance of stamp duty land tax (SDLT). Under the scheme, the ultimate purchaser (C) acquired a property from an unconnected vendor (A) via an unlimited company (B). C formed an unlimited company (B) and contributed cash to the unlimited company of a sufficient amount to purchase the target property. The contribution of funds was effected by subscribing for shares in B; A contracted to sell the property to B; and B paid the agreed purchase price for the property to A. At the same time as the completion of the contract between A and B, B reduced its capital and made a distribution in specie of the property to C. A executed a transfer to B, and B simultaneously executed a transfer to C. The scheme relied on the sub-sale relief in section 45 of the Finance Act 2003 under which the contract between A and B was disregarded and, because there was no consideration for the distribution in specie from B to C, no SDLT was payable. The respondent commissioners subsequently issued a notice of determination to the appellants in respect of the acquisition of the house, setting an SDLT liability on a chargeable consideration of £955,000 under section 45(3)(b)(i). The First-tier Tribunal upheld that decision. The Upper Tribunal dismissed the appellants’ appeal: [2022] UKUT 00298 (UT); [2023] 4 WLR 11. The appellants appealed. Held: The appeal was dismissed. (1) The Finance Act 2003, like any other Act of Parliament, had to be given a purposive interpretation involving two stages: (i) ascertain the class of facts intended to be affected by the charge or exemption (interpreting the statutory provision in the light of its purpose); and (ii) discover whether the relevant facts fell within that class (applying the statutory provision to the facts). The particular charging provision had to be interpreted in the context of the whole statutory scheme; and the facts had to be looked at in the round: Rossendale Borough Council v Hurstwood Properties (A) Ltd [2021] UKSC 16; [2021] EGLR 28 applied. (2) In a case to which section 45 applied there was a notional secondary contract. The original contract was that between A (the unconnected vendor) and B (the company). The notional contract was one between A and C (the appellants). The question was what the chargeable consideration under that notional contract was. The critical provision was section 45(3)(b). The consideration under the original contract was the purchase price of the property (£955,000). The question was whether that was given (directly or indirectly) either by the appellants or a person connected with them. Looking at the facts in the round, the appellants parted with £955,000 and in return they acquired the freehold. The mechanics of the acquisition did not undermine that fact. Funds were provided to a wholly owned vehicle, for the sole purpose of buying a particular identified property at an identified price, with the ultimate objective that the property would be vested in the persons providing the funds simultaneously with completion by the sale contract. The bulk of the funds were provided after the contract was made. All that was done under a pre-ordained scheme with no purpose other than the avoidance of SDLT. (3) Even if that was wrong, the company was connected with the appellant. On the footing that the company gave the consideration under the original contract, it would still be the chargeable consideration under the notional contract, because it was consideration given by a person connected with the transferee under that contract. That was a pure point of law which had wider implications for the proper assessment and collection of SDLT, it required no further fact-finding and it was conceded to be correct: Hudson v Hathway [2022] EWCA Civ 1648; [2022] EGLR 10 considered. (4) Section 75A was in principle applicable to the series of steps under which the appellants acquired the freehold in the property. Section 75A(1) applied where one person (V) (the unconnected vendor) disposed of a chargeable interest (here the freehold) and another person (P) (here the appellants) acquired it and a number of transactions were involved in connection with the disposal and acquisition. Under section 75A(4)(a), where section 75A applied, any of the scheme transactions which was a land transaction should be disregarded (75A(4)(a)) but there was a notional land transaction effecting the acquisition of V’s chargeable interest by P on its disposal by V (75A(4)(b)). In the notional world prescribed by section 75(4), the appellants still acquired the freehold which gave rise to a duty to deliver a land transaction return. Since they delivered no such return, the respondents were entitled to determine the amount of SDLT chargeable in respect of the transaction. The “transaction” was the notional transaction consisting of the appellants’ acquisition of the freehold on a disposal by the unconnected vendor. But it was still an acquisition of the same freehold. The respondents’ determination related to the acquisition of the property. That was precisely what the appellants acquired, either in the real world, or under the notional land transaction. Either way, it was within the scope of the respondents’ determination. (5) Moreover, section 75A was clearly a deeming provision. It was necessary to identify, if possible, the purposes for which and the persons between whom the statutory fiction was to be resorted to, and then apply the deeming provision that far, but not where it would produce effects clearly outside those purposes. In the present case, the only purpose of the notional transaction was to calculate the amount of SDLT properly due. The purpose of section 75A was not such as to require the real-world acquisition of the property by the appellants to be ignored for all purposes. The respondents were reliant on records at HM Land Registry to begin the process of assessing the proper amount of SDLT due. That would record a change of registered proprietor, but not the particular method by which proprietorship came to be transferred. Ross Birkbeck (instructed by Direct Access) appeared for the appellants; Ben Elliott (instructed by HMRC Solicitors) appeared for the respondent. Eileen O’Grady, barrister Click here to read a transcript of Brown and another v Commissioners of HM Revenue and Customs