The Commissioners for HM Revenue and Customs v Dv3 RS Ltd Partnership
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lady Justice Gloster,Lord Justice Maurice Kay,or |
| Judgment Date | 30 September 2013 |
| Neutral Citation | [2013] EWCA Civ 907 |
| Docket Number | Case No: A3/2013/0269 |
| Court | Court of Appeal (Civil Division) |
| Date | 30 September 2013 |
[2013] EWCA Civ 907
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
MR JUSTICE HENDERSON
FTC482011
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Maurice Kay, Vice President of
The Court Of Appeal, Civil Division
Lord Justice Lewison
and
Lady Justice Gloster
Case No: A3/2013/0269
Malcolm Gammie CBE QC (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the Appellant
Roger Thomas (instructed by Olswang LLP) for the Respondent
Introduction
DV3 Regent Street Ltd ("the Company") claims to have devised a simple and elegant scheme to avoid stamp duty land tax ("SDLT"). The Upper Tribunal (Henderson J) agreed, despite thinking that HMRC's contentions produced a sensible result on the facts, and that Parliament would not consciously have intended the result for which the Company argued. His decision is at [2012] UKUT 399 (TCC) and is available on BAILII. The question for us is: was he right?
With the permission of the Upper Tribunal HMRC appeal. Their case was presented by Mr Malcolm Gammie QC. Mr Roger Thomas represented the taxpayer.
For the reasons that follow I have concluded that the Upper Tribunal was wrong. I would allow the appeal.
The facts
The facts are relatively straightforward. On 24 October 2006 the Company entered into a contract with Legal & General Assurance plc ("L & G") to buy the head leasehold interest in the Dickins & Jones building in Regent Street for £65.1 million. The contractual completion date was 4 December 2006. Just over one month later on 29 November 2006 a partnership called DV3 RS Limited Partnership ("the Partnership") was established. The Company was entitled to 98% of the partnership income. The remaining partners were all connected with the Company for the purposes of SDLT; but critically one of those partners was not a body corporate. On the following day the Company entered into a contract with the Partnership under which it agreed to sell to the Partnership the same head leasehold interest for the same price, with completion on the same day as the L & G contract. On 5 December 2006 L & G executed a transfer in favour of the Company, and the Company executed a separate transfer to the Partnership.
If there had been no Partnership, or if L & G had transferred the head leasehold interest directly to the Partnership it is common ground that SDLT of £2.6 million would have been payable. So it seems that the efficacy of the scheme turns on the significance of the intermediate transfer from L & G to the Company.
SDLT
SDLT was introduced by the Finance Act 2003 (" FA 2003") to replace the long-standing stamp duty. Stamp duty was a tax on documents. By contrast, 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). An acquisition can take place without any act of the parties. It may take place by court order, by statutory provision or by operation of law: section 43 (2). 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). Sections 43 (4) and (5) 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."
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, unless otherwise expressly provided, 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. The taxpayer's argument in this appeal is that the facts fall within a case in which the amount of the chargeable consideration is "otherwise expressly provided" for.
Section 44 is at the heart of the appeal, so I must set out large parts of it in full:
"(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.
…
(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.
…
(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."
Section 45 is intended to deal with sub-sales and similar arrangements. It provides so far as material:
"(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) …
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 purchaser, and
(b) the consideration for the transaction is —
(i) 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, and
(ii) the 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 subsection (3) of section 73 (alternative property finance: land sold to financial institution and re-sold to individual).
…
(5A) In relation to a land transaction treated as taking place by
virtue of subsection (3) —
(a) references in Schedule 7 (group relief) to the vendor shall be read as references to the vendor under the original contract;
(b) other references in this Part to the vendor shall be read, where the context permits, as referring to either the vendor under the original contract or the transferor."
The final piece in the puzzle is Schedule 15 which deals with partnerships. One basic principle is that any separate legal personality of the partnership is to be disregarded: Schedule 15 para 2. Thus (i) a chargeable interest held by or on behalf of a partnership is treated as held by or on behalf of the partners; and (ii) a land transaction entered into for the purposes of a partnership is treated as entered into by or on behalf of the partners. As the Upper Tribunal rightly said: "a partnership is treated as transparent, even if as a matter of general law it has separate legal personality or corporate status."
As originally enacted, a transaction by which a partner transferred an interest in land to a partnership was excluded from SDLT: FA 2003 Sched 15 para 9 (1)...
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