Pollen Estate Trustee Company Ltd v Revenue and Customs Commissioners

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Lewison,Lord Justice McFarlane,Lord Justice Laws
Judgment Date26 June 2013
Neutral Citation[2013] EWCA Civ 753
Docket NumberCase No: A3/2012/2784 & 2808
Date26 June 2013

[2013] EWCA Civ 753

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM UPPER TRIBUNAL TAX AND CHANCERY CHAMBER

The President, Mr Justice Warren and Judge Timothy Herrington

FTC502011

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Laws

Lord Justice McFarlane

and

Lord Justice Lewison

Case No: A3/2012/2784 & 2808

Between:
(1) The Pollen Estate Trustee Company Limited
(2) King's College London
Appellants
and
The Commissioners for her Majesty's Revenue and Customs
Respondents

Mr J Peacock QC (instructed by Eversheds LLP) for the 1st Appellant

Mr A Hitchmough QC & Ms Zizhen Yang (instructed by Mills & Reeve LLP, Cambridge) for the 2nd Appellant

Ms A Tipples QC (instructed by the General Counsel & Solicitor to HMRC) for the Respondents

Hearing dates: 12 and 13 June 2013

Approved Judgment

Lord Justice Lewison

Introduction

1

If a charity acquires property in furtherance of its charitable purposes, or as an investment, it is entitled to relief against liability to pay stamp duty land tax (SDLT) on the purchase price. The same applies if a non-charity buys the property as bare trustee for the charity. But if the non-charity also has a beneficial interest in the property, then the charity is not entitled to any relief at all; not even in respect of its share of the beneficial interest. That is the effect of the decision of the Upper Tribunal (Mr Justice Warren P and Judge Herrington) in this case. Their decision is at [2012] UKUT 277 (TCC) [2010] STC 2443 and is available on bailli. The question for us is: were they right?

2

We are concerned with two appeals raising this point: an appeal by The Pollen Estate Trustee Company Ltd ("PETCL"); and an appeal by King's College, London ("KCL"). PETCL were represented by Mr Jonathan Peacock QC; and KCL by Mr Andrew Hitchmough QC and Ms Zizhen Yang. Ms Amanda Tipples QC appeared for HMRC in both appeals.

3

PETCL and KCL criticise the decision of the Upper Tribunal in two respects:

i) The Upper Tribunal identified the wrong interest in land as the basis for charge; and

ii) The Upper Tribunal adopted an unduly literal interpretation of the relieving provision applicable to acquisitions by charities.

4

For the reasons that follow, in my judgment the Upper Tribunal correctly identified the interest in land as the basis for charge; but in the light of the different way in which the case was argued before us did adopt an unduly literal interpretation of the relieving provision. I would therefore allow the appeal on the second point alone.

The facts

The Pollen Estate

5

PETCL is the trustee of the Pollen Estate, a trust set up by the will of the Rev George Pollen who died in 1812. Shares in the trust are freely alienable. There are over 100 beneficiaries; but the major beneficiaries are the Church Commissioners and the Secretary of State for Defence, the latter as trustee for the Greenwich Hospital. Their shares (rounded) are 64 per cent and 10 per cent respectively. Both the Church Commissioners and the Greenwich Hospital are charities. The remaining beneficiaries under the trust are not. The Secretary of State of course is also a minister of the Crown.

6

The assets of the Pollen Estate consist of commercial property in London (principally in the Cork Street area of the West End). From time to time PETCL sells or buys property. This appeal concerns four commercial properties that PETCL bought on behalf of the trust between December 2006 and June 2008.

King's College, London

7

KCL is a well-known university institution, which is part of the University of London. It is a charity. KCL operates a shared equity scheme under which it is prepared to participate in the acquisition of homes for its employees, in return for an equitable interest in the property acquired proportionate to its contribution. In our case the employee in question was Professor Trembath. He bought a lease of a flat in Clink Street London SE1 with the help of a contribution by KCL to the purchase price. As part of the arrangements for the purchase Professor Trembath executed a declaration of trust by which he declared that he held the flat as to 46.3 per cent for KCL and 53.7 per cent for himself.

SDLT: an overview

8

SDLT was introduced by the Finance Act 2003 (" FA 2003") to replace the long-standing stamp duty. But whereas stamp duty was a tax on instruments, SDLT is a tax on transactions.

9

SDLT is charged on land transactions: FA 2003 s. 42 (1). It is chargeable whether or not there is any instrument effecting the transaction: FA 2003 s. 42 (2) (a). A "land transaction" is defined as "any acquisition of a chargeable interest": FA 2003 s. 43 (1). A "chargeable interest" is any estate, interest, right or power in or over land in the United Kingdom, except an exempt interest: FA 2003 s. 48 (1). Exempt interests need not concern us. Sections 43 (4) to 43 (6) provide:

"(4) References in this Part to the "purchaser" and "vendor", in relation to a land transaction, are to the person acquiring and the person disposing of the subject-matter of the transaction.

These expressions apply even if there is no consideration given for the transaction.

(5) A person is not treated as a purchaser unless he has given consideration for, or is a party to, the transaction.

(6) References in this Part to the subject-matter of a land transaction are to the chargeable interest acquired (the "main subject-matter"), together with any interest or right appurtenant or pertaining to it that is acquired with it."

10

In the paradigm case of a land transaction that takes the form of a contract which is subsequently completed, entry into the contract does not of itself count as a land transaction; but when the contract is completed there is a single land transaction whose effective date is the date of completion: FA 2003 s. 44.

11

A land transaction is a chargeable transaction if it is not a transaction that is exempt from charge: FA 2003 s. 49 (1). The amount of tax chargeable in respect of a chargeable transaction is a percentage of the amount of the chargeable consideration for the transaction: FA 2003 s. 55 (1). The percentage varies according to the amount of the relevant consideration; and according to whether the property consists entirely of residential property or not. The tax rate begins at 1 per cent. In relation to residential property the threshold is chargeable consideration of more than £125,000; and in relation to non-residential or mixed property it is chargeable consideration of more than £150,000. The rate increases in bands according to the amount of the chargeable consideration. The chargeable consideration for a transaction is the consideration in money or money's worth given for the subject-matter of the transaction, directly or indirectly, by the purchaser or a person connected with him: Schedule 4 para 1.

12

Schedule 8 provides for relief from SDLT for acquisitions by charities: FA 2003 s 68 (1). The relevant provisions of Schedule 8 are as follows:

"1. (1) A land transaction is exempt from charge if the purchaser is a charity and the following conditions are met.

Relief under this Schedule is referred to in this Part as "charities relief".

(2) The first condition is that the purchaser must intend to hold the subject-matter of the transaction for qualifying charitable purposes, that is—

(a) for use in furtherance of the charitable purposes of the purchaser or of another charity, or

(b) as an investment from which the profits are applied to the charitable purposes of the purchaser.

(3) The second condition is that the transaction must not have not been entered into for the purpose of avoiding tax under this Part (whether by the purchaser or any other person).

3. (1) This paragraph applies where—

(a) a land transaction is not exempt from charge under paragraph 1 because the first condition in that paragraph is not met, but

(b) the purchaser ("C") intends to hold the greater part of the subject-matter of the transaction for qualifying charitable purposes."

13

Section 77 introduces the concept of a notifiable transaction. A land transaction is notifiable if it is the acquisition of a major interest in land that is not exempt under section 77A; or it is the acquisition of a chargeable interest other than a major interest in land where there is chargeable consideration in respect of which tax is chargeable at a rate of 1 per cent or higher. A "major interest" is in turn defined as an estate in fee simple absolute or a term of years absolute, whether subsisting at law or in equity: FA 2003 s. 117 (2). Interests that are neither of these (e.g. an undivided share in land) are not major interests, although they can still be chargeable interests.

14

Section 103 applies to a land transaction where there are two or more purchasers who are or will be jointly entitled to the interest acquired. "Jointly entitled" means beneficially entitled as joint tenants or tenants in common: FA 2003 s. 121. In such a case the general rules are that:

"(a) any obligation of the purchaser under this Part in relation to the transaction is an obligation of the purchasers jointly but may be discharged by any of them,

(b) anything required or authorised by this Part to be done in relation to the purchaser must be done by or in relation to all of them, and

(c) any liability of the purchaser under this Part in relation to the transaction (in particular, any liability arising by virtue of the failure to fulfil an obligation within paragraph (a)), is a joint and several liability of the purchasers."

15

However, if the transaction is a notifiable transaction only...

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