Crest Nicholson (Wainscott) and others v HM Revenue and Customs Commissioners

Stamp duty land tax – Avoidance – Sub-sale – Appellant companies entering into scheme involving reduction in capital by distribution in specie of land – Respondent commissioners issuing SDLT determinations to first and second appellants and discovery assessment in respect of third appellant – Appellants appealing – Whether first appellant liable for SDLT as original contracting party – Whether second appellant transferee acting as bare trustee or nominee for third appellant – Appeals of first and third appellants allowed – Appeal of second appellant dismissed   The appellants were all members of the Crest Nicholson Group of companies. The first appellant had been incorporated in 2006 as an unlimited company with share capital of £32,382,122. A few days later, it entered into agreements with three independent vendors to buy three parcels of land, which made up a development site, for a total sum of £32,382,122. On the same day, the second appellant made a payment of £32,382,122 to the first appellant in return for the issue of ordinary shares in the first appellant. The first appellant resolved to reduce its share capital by cancelling 32,382,120 ordinary shares of £1 each registered in the name of the second appellant and returning the capital paid on such ordinary shares to the second appellant as shareholder by way of distribution of the land together with assignments of the benefit of the three land acquisition agreements. The first appellant entered into three deeds of transfer, assigning the benefit of the agreements for sale of the land to the second appellant. The second appellant applied to register its title to the land, explaining that the contracts for purchase of the land had been assigned to the second appellant immediately before completion of the transfer of the land by way of three back to back sub-sale transfers completed simultaneously. It enclosed SDLT 60 forms on the basis that the transfers had been effected secondary to a distribution of the first appellant’s assets so that no consideration had been paid by the second appellant and the transfers should be ignored pursuant to section 45(3) of the Finance Act 2003. The respondent commissioners issued stamp duty land tax (SDLT) determinations to the first and second appellants under paragraph 25 of Schedule 10 to the 2003 Act in the sum of £1.295 million (4% on consideration of £32,382,120) on the basis that the reduction in the first appellant’s share capital represented the purchase price of the land. It also made a discovery assessment in respect of the third appellant on the basis that the second and third appellants had entered into a deed of agreement in 1991, under which the second appellant had acted as agent or nominee for the third appellant in acquiring the shares and taking a transfer of the legal title to the land. The appellants appealed. The first and second appellants contended that the process by which the respondents’ officer had decided to issue the determination was flawed. In the alternative, the first appellant argued that the sub-sale relief provisions in section 45 of the 2003 Act were engaged because it had assigned its rights under the purchase contracts to the second appellant; the second appellant argued that it had acted as a nominee or bare trustee for the third appellant, which was liable to pay any SDLT due. Held: The appeals of first and third appellants were allowed. The appeal of the second appellant was dismissed. (1) Under paragraph 35(1) of Schedule 10 to the 2003 Act, there was a right of appeal against a determination under paragraph 25. The extent of that right was limited by paragraph 36(5A). Paragraph 25(1) required the respondents to work as well as they could on the basis of such information as was available to them to arrive at what they believed to be the amount of tax chargeable. The process by which the respondents’ officer arrived at a decision to make a determination was irrelevant to any of the issues in respect of which an appeal could be made. If a party considered a determination of SDLT to be incorrect, paragraph 27 permitted it to submit a self-assessment of the SDLT due, at which point the respondents could inquire into the self-assessment and a different liability could ultimately be assessed. However, making a self-assessment would not be appropriate in the circumstances listed in paragraph 36(5A) because, if the purchase did not take place, the interest in the land had not been purchased, the contract had not been substantially performed, or the land transaction was not notifiable. There should be nothing to self-assess and there was no reason for that party to be within the SDLT system. Subject to those limited exceptions, there was no reason for any right of appeal against a determination under paragraph 25.  Therefore, the burden of proof fell on the first and second appellants to show that the determinations should not have been made. (2) There was nothing in the conditions in section 45(1)(b) referring to time. The ting rule in section 45 was in the tailpiece to section 45(3) and dealt only with timing in relation to completion of the contract. There was nothing concerning the timing of the exchange or sub-sale and there was nothing in the legislation to prevent transactions from being carried out in the manner followed in the present case. The conditions in section 45(1)(b) had been met in the first appellant’s case. In addition to the three deeds of assignment, there was an “other transaction” in the form of the distribution in specie of the rights under the property agreements. As a result, the second appellant was treated as the purchaser by section 45(3)(a). The consideration to be attributed to the secondary contract was £32,382,120. As the original contract was substantially performed or completed at the same time as, and in connection with, the substantial performance of the secondary contract, the substantial performance of the original contract was to be disregarded under section 45(3). Accordingly, the first appellant was not liable to SDLT in respect of the purchase of the land: Vardy Properties v Revenue and Customs Commissioners [2012] UKFTT 564 (TC) applied. Allchin v Revenue and Customs Commissioners [2013] UKFTT 20 198 (TC) considered. (3) The 1991 deed of agreement contained a declaration of a bare trust within the definition in paragraph 1 of Schedule 16. However, it referred only to property vested in the second appellant on or prior to the commencement date of the agreement in 1991 and had no relevance to the acquisition of the relevant land by the second appellant. The second appellant was under an obligation to hold the land to the order and account of the third appellant, but that was not sufficient for it to be a bare trustee or nominee. The third appellant could not be treated as the purchaser under the “secondary contract” posited by section 45(3). The liability to SDLT remained with the second appellant. It necessarily followed that the third appellant’s appeal would be allowed. Keith Gordon and Joseph Howard (instructed by DAC Beachcroft) appeared for the appellants; Hui Ling McCarthy (instructed by the General Counsel and Solicitor to HM Revenue and Customs) appeared for the respondents. Eileen O’Grady, barrister Click here to read a transcript of Crest Nicholson (Wainscott) and others v HM Revenue and Customs Commissioners