Fox v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 17 November 2022 |
| Neutral Citation | [2022] UKUT 310 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2022] UKUT 310 (TCC)
Judge Timothy Herrington, Judge Tracey Bowler
Upper Tribunal (Tax and Chancery Chamber)
Stamp duty land tax (SDLT) – Failed avoidance scheme – House purchased by wife and subsold to husband – Whether assessment correctly made on husband only – Yes – Former Finance Act 2003 (FA 2003), s. 45 – Appeal dismissed.
In Fox v R & C Commrs [2022] BTC 535, on appeal from Fox [2021] unreported, the Upper Tribunal confirmed that the assessment to SDLT in respect of a failed subsale-relief scheme had been correctly made on the husband only
The facts
Wishing to purchase a property to be held in their joint names costing £1,075,000, the appellant, Mr Fox, and his wife entered into an avoidance scheme, under which Mrs Fox purchased the property for £1,075,000 in her sole name and then subsold it to Mr Fox for £10,000.
Although the majority of the couple’s financial transactions were carried out from jointly held accounts, the £10,000 paid to his wife by Mr Fox came from an account in his sole name and was paid into an account in Mrs Fox’s sole name. By far the largest part of the funding for the purchase of the property came from a mortgage advanced to Mr Fox alone.
Had the scheme worked as intended, the former FA 2003, s. 45 would have disregarded the purchase by Mrs Fox and substituted a notional secondary contract under which the purchaser was Mr Fox and for which the consideration was that given for the transfer of rights to call for a conveyance from Mrs Fox to Mr Fox, i.e. £10,000. Mr Fox filed a land-transaction return on that basis.
Unfortunately for Mr Fox, he had overlooked that he and his wife were connected persons. It followed that the consideration under the secondary contract had to include consideration given under the original contract (the sale to Mrs Fox) not only by him but also by a person connected with him, namely Mrs Fox. The total consideration on which tax was payable was therefore £1,085,000 (£10,000 more than if the scheme had not been carried out at all).
Mr Fox accepted that the scheme had failed, but appealed to the First-tier Tribunal (FTT) on the grounds that the assessment should have been made on him and his wife jointly, since he had acted as an implied trustee for the two of them. Alternatively, he argued that the subsale contract and/or the transfer to him were invalid, such that former FA 2003, s. 45 was of no application.
The FTT’s decision
Having considered the facts and the sources of funding for the two contracts, the FTT concluded that Mr and Mrs Fox had correctly carried out the steps required for the scheme, that the £10,000 paid by Mr Fox to Mrs Fox had come from funds belonging to him solely and that the contract between them was valid. The scheme also required Mr Fox to be the ultimate sole owner of the property, which he was when the transactions were completed. The fact that the property was subsequently transferred to joint ownership and was so treated in the couple’s divorce settlement did not change that state of affairs.
The appeal
Mr Fox’s appeal to the Upper Tribunal was on three grounds:
- The FTT had erred in law in finding that monies held in particular accounts in the sole names of Mr or Mrs Fox were held for the holder’s sole benefit.
- The FTT had erred in law in concluding there was a valid contract between Mr Fox and his wife – his promise to pay her £10,000 had been worthless as all monies had been held jointly
- The FTT had erred in law in finding that the transfer form (TR1) by which the vendors transferred the property to him did in fact do so
The Upper Tribunal’s decision
Despite overlooking the fundamental issue of the connectedness of Mr and Mrs Fox, the scheme promoters had taken pains to ensure that the couple should both enter into the transactions on the basis of sole beneficial entitlement.
The FTT had carefully considered the basis on which Mr and Mrs Fox had entered into the contracts, whether monies were jointly held and whether the property was ultimately acquired by Mr Fox as trustee. The Upper Tribunal saw no basis for a successful challenge to the FTT’s conclusion that Mr Fox had paid £10,000 from an account in his sole name, to which he was solely entitled, to an account in the sole name of Mrs Fox, to which she was solely entitled. There was thus clearly consideration for the second contract (between Mr and Mrs Fox) paid by Mr Fox out of his own money, entitling him to call for a conveyance of the property to him. The second arm of former s. 45 was therefore satisfied.
Although it was consequently unnecessary to rule on the validity of the form TR1, the Upper Tribunal saw no reason for disturbing the findings of the FTT in this respect. The FTT’s finding that Mr Fox did not hold the property as trustee was also one it was entitled to make having taken all factors into account. It had been the parties’ original intention for Mr Fox to be the sole beneficial owner of the property on completion of the purchase, and that was what had in fact taken place.
The FTT had been right to find that the chargeable consideration was £1,085,000 and that Mr Fox was alone liable to pay the SDLT chargeable. The appeal would be dismissed.
On the facts, the FTT’s decision seemed the obvious one and one wonders why Mr Fox, who represented himself, thought the further appeal worthwhile. One can only be flabbergasted that the advisers or promoters in this case should have made such an elementary mistake in the first place.
FA 2003, s. 45 as it then stood was repealed and replaced by the new s. 45 and Sch. 2A (pre-completion transactions) with effect from 17 July 2013.
Comment by Zigurds G Kronbergs, Senior Tax Writer, Croner-i Ltd.
Mr Stuart Fox appeared as litigant appeared in person for the appellant
Mr Michael Ripley, Counsel, instructed by the General Counsel and Solicitor to His Majesty's Revenue and Customs appeared for the respondents
[1] The Appellant, Mr Fox, appeals against the decision (“the Decision”) of the First-tier Tribunal (“the FTT”) (Judge Charles Hellier and Michael Bell) made on 3 December 2021. In the Decision the FTT dismissed Mr Fox's appeal against an assessment to stamp duty land tax (“SDLT”) issued on 24 March 2010 in respect of the purchase of a house (“the Property”). Mr Fox had declared that the chargeable consideration for the purchase was £10,000 such that no SDLT was due, relying upon a scheme (“the Scheme”) in which he and his then wife (whom we refer to as Mrs Fox) had participated which was designed to save SDLT. The Scheme involved a sale of the Property to Mrs Fox and a sub-sale to Mr Fox. HMRC did not accept that the consideration stated on the SDLT return of £10,000 was correct and raised an assessment on the basis of chargeable consideration for the purchase by Mr Fox of £1,085,000.
[2] It is accepted by Mr Fox that the Scheme did not work as planned. The case before the FTT was that Mr Fox should only be liable for half of the SDLT on the basis that he acted as trustee for himself and Mrs Fox; or that the sub-sale contract and/or the transfer to him were invalid such that there was no transaction within the terms of the legislation imposing SDLT contained in section 45 of the Finance Act 2003 (“section 45”).
[3] The FTT rejected Mr Fox's arguments and confirmed that he was liable to SDLT on the revised chargeable consideration of £1,085,000.
[4] By a decision dated 31 January 2022 Judge Hellier granted permission to appeal against the Decision on the grounds that the FTT erred in law in its conclusions regarding the existence of an implied trust, the sub-sale being a contract which fell within section 45 and the transfer of the Property to Mr Fox.
[5] The appeal focuses on the provisions contained in section 45 which insofar as relevant stated at the relevant time:
(1) This section applies where–
- a contract for a land transaction (the original contract) is entered into under which the transaction is to be completed by a conveyance,
- there is an assignment, subsale or other transaction (relating to the whole or part of the subject-matter of the original contract) as a result of which a person other than the original purchaser becomes entitled to call for a conveyance to him, and
- paragraph 12B of Schedule 17A (assignment of agreement for lease) does not apply.
References in the following provisions of this section to a transfer of rights are to any such assignment, sub-sale or other transaction, and references to the transferor and the transferee shall be read accordingly.
(2) The transferee is not regarded as entering into a land transaction by reason of the transfer of rights, but section 44 (contract and conveyance) has effect in accordance with the following provisions of this section.
(3) That section applies as...
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Stuart Fox v The Commissioners for HM Revenue and Customs [2022] UKUT 00310 (TCC)
...[2022] UKUT 00310 (TCC) Case Number: UT/2022/000014 UPPER TRIBUNAL (Tax and Chancery Chamber) At the Royal Courts of Justice SDLT - Section 45 Finance Act 2003- sub-sale scheme-whether assessment should have been made on husband and wife jointly Heard on: 6 September 2022 Judgment date: 17 ......