Oisin Fanning v The Commissioners for HM Revenue & Customs
| Jurisdiction | England & Wales |
| Judge | Lady Justice Falk,Lord Justice Lewis,Lord Justice Peter Jackson |
| Judgment Date | 13 March 2023 |
| Neutral Citation | [2023] EWCA Civ 263 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA-2022-000609 |
[2023] EWCA Civ 263
Lord Justice Peter Jackson
Lord Justice Lewis
and
Lady Justice Falk
Case No: CA-2022-000609
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
MR JUSTICE MILES AND JUDGE JONATHAN RICHARDS
Royal Courts of Justice
Strand, London, WC2A 2LL
Julian Hickey and Rebecca Sheldon (instructed by Levy and Levy Solicitors) for the Appellant
Elizabeth Wilson KC and Admas Habteslasie (instructed by the Solicitor and General Counsel to the Commissioners for HMRC) for the Respondents
Hearing date: 1 March 2023
Approved Judgment
This judgment was handed down remotely at 10.30am on 13 March 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
Introduction and factual background
On 16 September 2011 the Appellant, Mr Fanning, completed on the purchase of a flat in Grosvenor Square (the “Property”) from a company called Glendale Enterprises Four Limited (“Glendale”). The purchase price was £5,200,000, of which £200,000 was allocated to chattels. At that time the transaction would ordinarily have been charged to stamp duty land tax (“SDLT”) at a rate of 5%, resulting in a tax charge of £250,000. However, Mr Fanning filed a SDLT return on the basis that he had no liability.
The basis for the position that Mr Fanning adopted was that tax was not due as a result of another transaction that Mr Fanning entered into on the same date. This was an agreement entered into between Mr Fanning and an Irish incorporated company, San Leon Energy plc (“San Leon”), under which Mr Fanning agreed to grant San Leon an option to purchase the Property (the “Option”). The consideration for the grant of the Option was £100. The Option was exercisable between 16 September 2016 and 16 September 2031 and the consideration payable on its exercise was the market value of the Property at that time.
When the transactions were entered into Mr Fanning was the executive chairman of San Leon, but he was not “connected” with it for tax purposes. The First-tier Tribunal (“FTT”) found that San Leon was happy to assist Mr Fanning on the basis that the flat would be available for rent by San Leon for use by its staff. San Leon also lent Mr Fanning £300,000 towards the purchase price, the balance being funded by Barclays Wealth. Barclays took a charge over the Property. The Option was not registered with the Land Registry and, at least at the time of the hearing before the FTT, had not been exercised.
HMRC disagreed with Mr Fanning's SDLT analysis and issued a discovery assessment on 28 March 2014, which was upheld following a statutory review. Mr Fanning appealed unsuccessfully to the FTT and then appealed to the Upper Tribunal (“UT”). In a decision of Miles J and Judge Jonathan Richards the UT rejected Mr Fanning's appeal, in part on a different basis to the FTT (the “UT decision”). This is Mr Fanning's further appeal, made after permission was granted by Asplin LJ on three out of five of his grounds of appeal to this court.
I understand from HMRC that there are 41 appeals standing behind Mr Fanning's, with over £4 million of tax at stake.
The relevant legislation
The analysis adopted by Mr Fanning relies on a provision that has already generated more than its fair share of case law, s.45 of the Finance Act 2003 (“FA 2003”). We are concerned here with the version of s.45 in force in 2011. Section 45 was amended by both the Finance Act 2012 and the Finance Act 2013 with retrospective effect from 21 March 2012, but those changes obviously had no effect on the transactions to which Mr Fanning was a party. The Finance Act 2013 also introduced a more fundamental rewriting of s.45.
It is first necessary to set s.45 in context. References to statutory provisions below are, unless otherwise indicated, to provisions of FA 2003 as in force in September 2011.
SDLT was introduced as a new tax by Part 4 of FA 2003. It replaced stamp duty in relation to land. Unlike stamp duty it is a tax on transactions rather than documents. Section 42 provides that SDLT applies to “land transactions” and makes clear that the tax is chargeable whether or not there is any instrument effecting the transaction in question. By s.49 all land transactions are chargeable to tax unless they are exempted.
Section 43 defines a land transaction as any acquisition of a “chargeable interest”, a concept in turn defined by s.48 to include (subject to certain exceptions) any “estate, interest, right or power in or over land in the United Kingdom”. Section 43(4) provides that references to the “purchaser” and “vendor” are to the person acquiring and person disposing of the “subject-matter of the transaction”. Section 43(6) makes clear that the subject-matter of the land transaction means the chargeable interest acquired (together with any right appurtenant to it).
SDLT is charged on the “chargeable consideration” for the transaction, which is generally any consideration in money or money's worth given for the subject-matter of the transaction, whether directly or indirectly by the purchaser or a person connected with him (paragraph 1 of Schedule 4 to FA 2003).
SDLT is subject to a self-assessment regime. At the relevant time returns were generally required to be submitted, and tax paid, within 30 days of the “effective date” of the transaction, which is generally the date of completion (ss.76 and 119).
Sections 44 and 45 are central to this appeal. As in force at the relevant time they provided as follows:
“ 44 Contract and conveyance
(1) This section applies where a contract for a land transaction is entered into under which the transaction is to be completed by a conveyance.
(2) A person is not regarded as entering into a land transaction by reason of entering into the contract, but the following provisions have effect.
(3) If the transaction is completed without previously having been substantially performed, the contract and the transaction effected on completion are treated as parts of a single land transaction. In this case the effective date of the transaction is the date of completion.
(4) If the contract is substantially performed without having been completed, the contract is treated as if it were itself the transaction provided for in the contract. In this case the effective date of the transaction is when the contract is substantially performed.
(5) A contract is “substantially performed” when—
(a) the purchaser, or a person connected with the purchaser, takes possession of the whole, or substantially the whole, of the subject-matter of the contract, or
(b) a substantial amount of the consideration is paid or provided.
(6) For the purposes of subsection (5)(a)—
(a) possession includes receipt of rents and profits or the right to receive them, and
(b) it is immaterial whether possession is taken under the contract or under a licence or lease of a temporary character.
(7) For the purposes of subsection (5)(b) a substantial amount of the consideration is paid or provided—
(a) if none of the consideration is rent, where the whole or substantially the whole of the consideration is paid or provided;
(b) if the only consideration is rent, when the first payment of rent is made;
(c) if the consideration includes both rent and other consideration, when —
(i) the whole or substantially the whole of the consideration other than rent is paid or provided, or
(ii) the first payment of rent is made.
(8) Where subsection (4) applies and the contract is subsequently completed by a conveyance—
(a) both the contract and the transaction effected on completion are notifiable transactions, and
(b) tax is chargeable on the latter transaction to the extent (if any) that the amount of tax chargeable on it is greater than the amount of tax chargeable on the contract.
(9) Where subsection (4) applies and the contract is (to any extent) afterwards rescinded or annulled, or is for any other reason not carried into effect, the tax paid by virtue of that subsection shall (to that extent) be repaid by the Inland Revenue. Repayment must be claimed by amendment of the land transaction return made in respect of the contract.
…
(10) In this section—
(a) references to completion are to completion of the land transaction proposed, between the same parties, in substantial conformity with the contract; and
(b) “contract” includes any agreement and “conveyance” includes any instrument.
(11) Section 1122 of the Corporation Tax Act 2010 (connected persons) has effect for the purposes of this section.
45 Contract and conveyance: effect of transfer of rights
(1) This section applies where—
(a) a contract for a land transaction (“the original contract”) is entered into under which the transaction is to be completed by a conveyance,
(b) 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
(c) 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 applies as if there were a contract for a land transaction (a “secondary contract”) under which—
(a) the transferee is the...
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