Geering and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 23 April 2018 |
| Neutral Citation | [2018] UKFTT 233 (TC) |
| Date | 23 April 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0233 (TC)
Judge John Brooks
Patrick Cannon, counsel, instructed by ME Office Limited, appeared for the appellants
Peter Gerard Kane of HM Revenue and Customs, appeared for the respondents
Stamp duty land tax (SDLT) – Avoidance scheme – Purchase of property by unlimited company – Reduction in capital and dividend in specie of the property – Whether consideration for shares is consideration given indirectly for purchase of property (FA 2003, s. 45(3)(b)(i)) – Yes – Whether FA 2003, s. 75A engaged – Yes.
The First-tier Tribunal (FTT) decided that where transactions are preordained money contributed to a company as a subscription for shares was also consideration given indirectly for the purchase of a property for the purposes of FA 2003, s. 45(3)(b)(i).
In December 2010 Mr and Mrs Geering (the Appellants) entered into a marketed avoidance scheme promoted by Premier Strategies Limited to avoid the SDLT on the purchase for £2m of a property in Cobham, Surrey. A private unlimited company incorporated under the Companies Act 2006 was formed and the Appellants subscribed in cash for shares equal to the value of the deposit to be paid to the vendor. The company then entered into a contract to purchase the property from the vendors for the agreed purchase price and paid the deposit. Following exchange of this contract the company resolved to reduce its share capital by way of a distribution in specie of the property to the Appellants. Prior to completion the Appellants subscribed for additional shares in the company using a promissory note effecting an undertaking to pay the subscription monies at a future date. On the day of completion the mortgage monies were paid across to the vendors by the conveyancing solicitor, thus satisfying the promissory note. HMRC issued Revenue Determinations to the Appellants for the SDLT calculated as if they had acquired the property for a consideration of £2m and a Discovery Assessment to the unlimited company for the same amount.
HMRC argument was that:
- under FA 2003, s. 45(3)(a) the Appellants were deemed to be the purchaser of the property and;
- the consideration paid by the Appellants for their subscription for the shares in the unlimited company was also given indirectly by them as the consideration for the acquisition of the property under s. 45(3)(b)(i).
The Appellants appealed against the Revenue Determinations on the grounds that a direct payment of consideration for an immediate purpose (a subscription for shares) cannot also amount to the indirect provision of consideration for another purpose (the purchase of a property). The unlimited company also appealed against the Discovery Assessments.
The FTT dismissed the Appellants appeal holding that, since the transactions were preordained, on a proper interpretation of s. 45(3)(b)(i) the consideration paid as a subscription for shares in the company also amounted to the indirect provision of consideration for the purchase of the property, following an earlier Tribunal decision in Vardy Properties [2012] TC 02242. Further, the FTT held that even if they were wrong on this point the Appellants would not escape liability to SDLT because since the Appellants had provided the purchase money to the company, the company held the property as bare trustee on a resulting trust for the Appellants who are absolutely entitled to the property against the company. Further, the FTT held that even if they were wrong on both these points the transactions fell within the anti-avoidance provisions in FA 2003, s. 75A notwithstanding that the vendor had no involvement or even knowledge of the arrangements effected by the Appellants subsequent to the disposal.
The FTT however allowed the appeal against the Discovery Assessment by the company because of the disregard of the completion of the contract for the purchase of the property in s. 45(3).
The statutory provisions considered in this case were repealed with effect in relation to transfers of rights entered into on or after 17 July 2013 and so this case has limited ongoing significance. However, it is a salutary reminder of the risks of undertaking marketed tax avoidance schemes. The Tribunal judge in this case quoted the observation of Lord Greene MR in Lord Howard de Walden v IR Commrs (1941) 25 TC 121 that: “it scarcely lies in the mouth of the taxpayer who plays with fire to complain of burnt fingers”.
[1] Unless otherwise stated, all subsequent statutory references are to the provisions of the Finance Act 2003.
[2] Mr Michael Geering, Mrs Jean Geering (together the first appellant) and Ms Tracey Robinson (the third appellant) appeal against Revenue Determinations for Stamp Duty Land Tax (“SDLT”) issued by HM Revenue and Customs (“HMRC”) pursuant to paragraph 5 of Schedule 10 in the sums of £80,000 and £83,255.02 respectively.
[3] Staples Green Properties (the second appellant) and 063350356 (formerly Broad Oaks Country House, the fourth appellant), both private unlimited companies incorporated under the Companies Act 2006, appeal against Discovery Assessments, issued by HMRC under paragraph 28 of Schedule 10, for SDLT in the sums of £80,000 and £83,255.02 respectively.
[4] The Determinations and Assessments were issued as HMRC considered that there had been a failure to deliver SDLT returns in relation to a property purchased, for £2,000,000 in the case of Mr and Mrs Geering and Staples Green Properties and a property purchased for £2,081,398 in the case of Ms Robinson and 063350356 (formerly Broad Oaks Country House), under a marketed “distribution in specie” avoidance scheme. The scheme, which sought to take advantage of the “disregard” contained in s 45(3) (which is set out below), is similar to that used unsuccessfully by the taxpayers in Vardy Properties [2012] TC 02242 (“Vardy”).
[5] The material parts of s 45 (as in force at the time of the transactions with which these appeals are concerned) provided:
(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, subsale 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 [s 44] applies as if there were a contract for a land transaction (a “secondary contract”) under which–
- the transferee is the purchaser, and
- the consideration for the transaction is–so much of the consideration under the original contract as is referable to the subject-matter of the transfer of rights and is to be given (directly or indirectly) by the transferee or a person connected with him, andthe consideration given for the transfer of rights.
The substantial performance or completion of the original contract at the same time as, and in connection with, the substantial performance or completion of the secondary contract shall be disregarded except in a case where the secondary contract gives rise to a transaction that is exempt from charge by virtue of any of sections 71A to 73 (which relate to alternative property finance).
[6] It is not disputed that the arrangements utilised by the appellants in this case were in accordance with the following explanation, contained in a letter of 2 November 2010 from the promoter Premier Strategies Limited, to Mr and Mrs Geering:
The first step is for you to establish an unlimited company. The formation of the company and the preparation of all associated documentation will be dealt with by Premier Strategies Limited. The company must be unlimited in order for it to make a later distribution of the property without having to observe the formalities of limited companies.
Once the company has been formed you will subscribe for shares equal to the value of the deposit to be paid to the vendor. The company will then enter into a contract...
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Brown and Another v R & C Commissioners
...within the meaning of section 45(3)(b)(i). This analysis was adopted by the FTT in Vardy Properties [2012] TC 02242 and Geering [2018] TC 06466 (the Vardy Argument). [39] There is no challenge to the FTT's conclusion that s 45 FA 2003 applies in this case. Neither is there any challenge to ......