TC03770: Darren Hills and another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 02 July 2014 |
| Neutral Citation | [2014] UKFTT 646 (TC) |
| Date | 02 July 2014 |
| Court | First-tier Tribunal (Tax Chamber) |
[2014] UKFTT 646 (TC)
Judge Malachy Cornwell-Kelly, Mr John Coles
Ms Rebecca Murray, instructed by The VAT Consultancy, appeared for the taxpayers
Mr Hui Ling McCarthy, instructed by the Solicitor and General Counsel to HMRC, appeared for the Crown
Value Added Tax Act 1994 ("VATA 1994"), Value Added Tax Act 1994 schedule 10Sch. 10 - Lease and sale by pension trustee - Retrospective acceptance of option to tax land - Whether sale grant made by person exercising option - Whether prior permission needed - Revised texts of VATA 1994, Value Added Tax Act 1994 schedule 10Sch. 10 - Appeal dismissed.
The First-tier Tribunal (FTT) dismissed the appeal by Mr and Mrs Hills as third parties against HMRC's decision that VAT was chargeable on the sale to them of a freehold commercial property (the Property).
The FTT considered whether VAT was due on the sale of the Property on a Business Park by the Trustee of a self-invested personal pension plan (the SIPP) for £650,000 "plus VAT (if applicable)". This depended on (1) whether the seller (the grantor) had opted to tax and (2) whether HMRC's prior permission was required before a valid option could be made.
On 30 March 2004, the SIPP bought the Property. The following day, the SIPP granted a 15-year lease of the Property to Dr and Mrs Patel for use in a dental practice, i.e. a mainly VAT-exempt business. Although no option to tax was notified to HMRC, the SIPP charged VAT on the rents due under that lease. On 16 November 2010, HMRC accepted the SIPP's belated notification of the option in respect of the Property with effect from 30 March 2004. On 8 September 2010, Dr Patel died. December 2011 saw the completion of the sale of the Property to Mr and Mrs Hills.
Mr and Mrs Hills deposited in escrow the VAT at issue, being £130,000, i.e. 20 per cent of £650,000. They argued that the sale to them was an exempt supply because either:
(2) the Trustee of the SIPP held the Property on trust for the SIPP beneficiary. Thus, the supply of the Property was made, not by the Trustee, but by the SIPP beneficiary, who unlike the Trustee had not opted to tax ("the grantor issue") (Value Added Tax Act 1994 schedule 10 subsec-or-para 40Sch. 10, para. 40) (para. 27 and 40 of the decision); or
(3) HMRC's prior permission was needed in order for the Trustee's option to tax to be valid. Such permission was neither sought nor given before the sale, so the option was invalid and the sale was an exempt supply ("the prior permission issue") (Value Added Tax Act 1994 schedule 10 subsec-or-para 20Sch. 10, para. 20) (para. 31 and 55 of the decision).
As regards "the grantor issue", the FTT noted that:
(2) any relatives and dependants of Mrs Patel potentially had a beneficial interest in the pension fund; and
(3) some items must be deducted from the sale proceeds in calculating Mrs Patel's share (para. 58 of the decision).
The FTT held that the benefit of the sale proceeds of the Property accrued to the Trustee, not to Mrs Patel.
As regards "the prior permission issue", the anti-avoidance provisions did not apply (para. 33 and 70 of the decision). Thus, the decision to opt to tax had been made when the Property was purchased on 30 March 2004 and the option applied from that date, i.e. the day before granting the lease to Dr and Mrs Patel.
In upholding the VAT assessment, with costs on the standard basis, the FTT noted that no exempt grant had been made before the day from which the Trustee wished the option to apply, so HMRC's prior permission was not needed.
As regards the possibility of the UT being in a position to exercise both a statutory interpretation and a judicial review jurisdiction, the FTT considered transferring the appeal entirely to the UT under Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 28, but HMRC disapproved.
Reallocating a case to the complex track is unusual if done as late as the start of the hearing. Inevitably, that is too late to benefit from much of the procedural advantage. The FTT commented that, if an application been made earlier, it would have been granted. The complexity of the legal issues and the likelihood that the questions of law will lead to it proceeding beyond first instance, including the possibility of there being parallel proceedings in the High Court, justify that conclusion (Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 23(4)(b)).
Having obtained HMRC's acceptance of a late notification of the option, arguably it is difficult to persuade the FTT that the option should be disapplied. Where transactions concern related persons, tax advice should still be sought promptly. Usually, such transactions should be structured so that, where possible, significant amounts of VAT are promptly reclaimed. In this case, the VAT on the purchase of the Property was reclaimed by the SIPP. The result was that the rents must be paid with VAT added. However, this cost to a business that makes primarily exempt supplies is spread over some years. Effectively, the VAT on the purchase of the Property sticks in the long term, but the large and early VAT refund helps cash flow. With £130,000 VAT at issue, an appeal may well be lodged.
[1]Darren and Lynn Hills are the buyers of a freehold property ("the Property") called Unit 4, Cardiff Gate Business Park, Cardiff, and the question raised in the appeal is whether VAT was chargeable on the sale to them by NM Pensions Trustees Limited of that property on 22 or 23 December 20111.
[2]Mr and Mrs Hills appeal as third parties against HMRC's decision of 16 February 2012 that VAT is chargeable at the standard rate on the sale. If VAT is chargeable on the supply, the obligation to account for and pay the tax falls on the seller, not on the Hills (who have deposited the tax in escrow). Their interest in the VAT treatment arises because the sale price of £650,000 was expressed to be "plus VAT (if applicable)", which is a further £130,000.
[3]A self-invested personal pension plan ("the SIPP") was established by a trust deed dated 3 January 2002 between GE Pensions Limited and GE Pensions Trustees Limited; this deed was supplemented by a deed dated 6 April 2006 between the same parties replacing the provisions of the earlier deed. Two further supplemental deeds of 18 May 2007 and 16 July 2008 were made. The first recorded a change of name of the two companies to NM Pensions Limited and NM Pensions Trustees Limited respectively; the second put in place a new "provider" of the pension scheme, Windsor Life Assurance Company Limited. We refer to NM Pensions Trustees Limited as "the Trustee".2 The SIPP was a registered pension scheme within Finance Act 2004 part 4Part 4 of the Finance Act 2004.
[4]Clare Patel and her husband Viren Patel completed a Property Application form to use the SIPP for the acquisition of the Property on 11 June 2003, in which they showed the proportion of their interests as 60% to Dr Patel and 40% to Mrs Patel. They both became members of the trust scheme on 30 July and 5 August 2003 respectively. Unit 4, Cardiff Gate Business Park ("the Property") was purchased by the Trustee on 30 March 2004 using the funds in the SIPP, but also with a business mortgage which the Trustee contracted, as its principal asset; one day later on 31 March, a 15 year lease of it was granted to Dr and Mrs Patel for use as a dental practice, a mainly VAT exempt undertaking.
[5]On 8 September 2010, Dr Patel died, and a sale of the property was then contemplated. There appears to have been concern that the process was taking too long, because on 7 November 2011 the solicitors acting in the sale wrote to the purchaser's solicitors in these terms:
We understand that there is a time limit imposed by pensions legislation which requires distribution of benefits following the death of a holder of a pension. Following Mr Patel's death is a time limit within which benefits can be distributed to his widow and family. We do not feel it is appropriate to provide you with the full information at this stage as no doubt you can obtain your own advice in this regard. However our client is suffering the risk of extreme prejudice if the sale of the property is not completed promptly.
[6]On 22 December 2011 the sale by the Trustee to the appellants was agreed, and completed the same day, or the next day.
[7]On 12 July 2010, the Trustee had written to the Revenue to make a "belated notification of option to tax", or an election under Value Added Tax Act 1994 schedule 10Schedule 10 of the Value Added Tax Act 1994 "to waive exemption" in regard to the property, adding that the Property "should have been elected from 14 April 2004".; the election stated that there had been no previous exempt supplies in respect of the property in the ten years up to 14 April 2004. A copy of the first rent demand was enclosed showing VAT payable. The copy of the rent demand supplied to the tribunal does show VAT, but does not show the name or address of the sender; it is addressed to Dr and Mrs Patel and it is stated to be for "rent monthly in advance for the period 30/03/2004 to 23/06/2004", due on 30/03/2004; it is dated 14/04/2004.
[8]It was followed by a VAT invoice dated 11/08/2004 addressed likewise for "rent monthly in advance for the period 30/03/2004 to 23/06/2004, due on 30/03/2004", and was issued by the Trustee; the tax point is shown as 16/07/2004. (The print of the invoice in evidence seems to have been produced at a more recent date, because it bears the logo of Liverpool Victoria Friendly Society Limited which did not take over the Trustee company until 2007; a footnote shows NM Trustees Limited as part of the Liverpool Victoria group. It was not suggested that this invoice was a fake, and we accept that it...
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