Ladywalk LLP
| Jurisdiction | UK Non-devolved |
| Judgment Date | 05 May 2020 |
| Neutral Citation | [2020] UKFTT 207 (TC) |
| Date | 05 May 2020 |
| Court | First Tier Tribunal (Tax Chamber) |
[2020] UKFTT 207 (TC)
Judge Andrew Scott
Stamp duty land tax – Application of transitional rules in s. 2 of the Stamp Duty Land Tax Act 2015 – Whether transaction effected in pursuance of a contract entered into before applicable date – Yes – Whether contract varied, or other transaction took place, on or after applicable date – No – Appeal allowed.
[1] his appeal concerns the application of the transitional rules on the introduction of the new system for calculating stamp duty land tax (SDLT) on the purchase of residential property that became operational in respect of transactions taking place on or after 4 December 2014. The transitional rules in question included provision for a purchaser of residential property to make an election for the relevant transactions to be taxed in accordance with the old rules if the transactions were effected in pursuance of a contract entered into before the operational date of the new rules (4 December 2014) and no relevant event occurred on or after that date to exclude those contracts from the transitional protection. The question that falls to be determined in this appeal is whether the purchaser was entitled to make the election.
[2] The relevant transactions were the purchase of two properties known as Ladywalk and Bramble Lodge (and in what follows a reference to the Ladywalk properties includes both Ladywalk and Bramble Lodge). The contract for the sale of the Ladywalk properties was entered into on 11 June 2014. The properties were conveyed on 17 July 2015 to a limited liability partnership, Ladywalk LLP (and in what follows a reference to the LLP is a reference to Ladywalk LLP). The LLP was constituted after 4 December 2014, and, accordingly, it was common ground that it could not have been a party to the contract before that time. The membership interests in the LLP were held by Continental Administration Services Limited, St Kitss and Nevis (“CASL”). For the purposes of SDLT, the LLP was treated as transparent.
[3] On 16 September 2016 HMRC issued closure notices under paragraph 23 of Schedule 10 to the Finance Act 2003 (“FA 2003”) in respect of the acquisition of Ladywalk and Bramble Lodge and amended the land transaction returns in relation to Ladywalk and Bramble Lodge to show additional SDLT of £919,920.00 (plus interest of £30,114.82) for Ladywalk and additional SDLT of £150,000 (plus interest of £4,910.44) for Bramble Lodge.
[4] On 27 September 2016 the LLP appealed the closure notices to HMRC and, following that appeal, HMRC accepted that CASL was not a “non-natural purchaser of a residential property” and was therefore not liable to the higher rate of 15% SDLT. That higher rate of SDLT would have been chargeable in respect of the purchase of the Ladywalk properties if (looking through the transparent LLP) CASL was a company (see paragraph 3(3)(a) of Schedule 4A to FA 2003). But “company” was defined so as not to include a company acting in its capacity as trustee of a “settlement” (paragraph 3(4) of Sch.4A), which is defined as a trust other than a bare trust (paragraph 1(1) of Sch.16).
[5] HMRC accepted that, because CASL was a trustee of various settlements and was acting in its capacity as trustee of those settlements, it was not a company for the purposes of para. 3 of Sch.4A to FA 2003 and therefore the 15% SDLT rate did not apply.
[6] On 31 March 2017 HMRC issued a “View of the Matter Letter” and concluded that: (1) the transactions relating to the Ladywalk properties should be treated as linked for the purposes of section 108 of FA 2003; (2) the effective date of the transactions for the calculation of SDLT was 17 July 2015 and the LLP could not rely on the transitional rule because the relevant contract had been varied; and (3) the 15% rate of SDLT did not apply. Having accepted that the 15% SDLT charge did not apply, HMRC calculated the additional SDLT to be payable as follows: £498,693 in respect of Ladywalk and £ 95,046 in respect of Bramble Lodge.
[7] The LLP requested a review of HMRC's decisions on 9 April 2017. On 22 May 2017 HMRC upheld the decisions that: (1) the effective date of the transactions for the calculation of SDLT was 17 July 2015 and the LLP could not rely on the transitional rule; and (2) the transactions relating to the Ladywalk properties should be treated as linked for the purposes of s.108 of FA 2003.
[8] The LLP appealed to this tribunal by a notice of appeal dated 16 June 2017.
[9] In the LLP's original grounds of appeal it contested HMRC's view that the transactions at issue in this appeal were “linked transactions” for the purposes of s.108 of FA 2003. By the time of the hearing the LLP had abandoned its appeal on that issue. It was accepted by Mr Thomson on behalf of the LLP that the consequence of the transactions for the purchase of the Ladywalk properties being “linked” was that there was an additional £30,000 of SDLT payable even if the LLP was successful in its submission that it was entitled to transitional protection so that the old rules for calculating SDLT applied to the transactions.
[10] This appeal turns on two principal issues:
- whether the transactions for the purchase of the Ladywalk properties on 17 July 2015 were for the purposes of SDLT effected in pursuance of a contract; and
- if so, whether anything happened on or after 4 December 2014 of such a kind that, even though the transactions were effected in pursuance of a contract, transitional protection was lost.
[11] HMRC submitted that, as a result of the application of section 44 of FA 2003, the transactions were not effected in pursuance of the contract. That was because the person to whom the Ladywalk properties were conveyed (the LLP) was different from the person who was the party to the contract and, consequently, there had been no completion of the contract within the meaning of section 44 with the result that the contract was disregarded for SDLT purposes. Shortly before the hearing began, HMRC sought to arrive at the same outcome via section 44A of FA 2003 but, as explained below, permission to make submissions to that end was denied by me at the outset of the proceedings and, having been invited to make written representations after the hearing as to the true function of s.44A for the purposes of SDLT, HMRC conceded that the “better view” was that it had no application in relation to the facts of this case.
[12] HMRC also submitted that, even if the transactions were effected in pursuance of a contract entered into before 4 December 2014, there had been a relevant event occurring on or after that date that resulted in the transactions being excluded from the transitional protection.
[13] HMRC submitted that the contract had been varied after 4 December 2014. The principal ground on which they relied was one that was, again, raised shortly before the hearing, namely that an agreement entered into in June 2015 had varied the contract. The other ground (which was relied on in the closure notice) was that the contract had been varied because the Ladywalk properties were conveyed to a person (the LLP) who was not a party to the contract. Accordingly, the effect of the contract on completion was different from its intended effect when entered into and it followed, therefore, that there had been a variation of the contract for the purposes of the transitional rules.
[14] Those submissions focused on whether events occurring after 4 December 2014 could be regarded as variations of a contract. As an alternative, HMRC submitted that, if those events had not varied the contract for the purposes of the transitional rules, the tribunal should infer that there must have been an assignment, subsale or other transaction relating to the Ladywalk properties as a result of which the LLP (who was not the purchaser under the contract) became entitled to call for a conveyance to it.
[15] Mr Thomson's case on behalf of the appellant was, in essence, a simple one. He argued that, on a simple reading of the relevant statutory provisions, the transactions for the Ladywalk properties had been effected in pursuance of a contract entered into before 4 December 2014. Moreover, properly understood, what happened after 4 December 2014 was simply the performance of the original contract. The June 2015 agreement was a separate contract that had no effect at all on the terms of the original contract. And the conveyance to the LLP was plainly something that had been contemplated by the terms of the contract.
[16] That was, in part, because the persons with, to use a neutral expression, the substantive economic interests in the Ladywalk properties were the beneficiaries of the trusts on which CASL held its membership interests in the LLP. Indeed, Mr Thomson went further than this and submitted that the beneficiaries under the trusts were, as a matter of law, entitled to deal with the Ladywalk properties and the combined effect of two separate deeming provisions of the SDLT code were that they (rather than the members of the LLP) should be regarded as the purchasers of the Ladywalk properties.
[17] Shortly before the hearing began (29 November 2019), HMRC sought to make substantive revisions to their statement of case. The revisions included two new points, namely: (1) submissions that rested on the application of s.44A of FA 2003 and invited the tribunal to draw an inference that an agreement existed; and (2) a submission that an agreement in June 2015 constituted a variation of the original contract. In addition, HMRC sought to rely on two further documents, namely charge documents to which the LLP was a party.
[18] Having heard submissions from the parties, I gave permission for HMRC to advance the variation argument but denied them permission to make submissions on the application of s.44A of FA 2003. I did not allow the charge documents to be added to the agreed bundle...
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