The introduction of the SDLT anti-avoidance rule in section 75A of the Finance Act 2003 in December 2006, caused much unwelcome consternation and uncertainty. Essentially, s75A seeks to replace actual transactions with a notional transaction and impose SDLT on the highest amount of consideration payable for any of the actual transactions. HMRC published guidance (in November 2010) which sought to clarify and narrow the scope of the rules. Nearly 13 years on, there is still a lack of clarity and as such, evolving case law is read with much interest.
The first case on s75A was Project Blue Ltd v HMRC . The case involved the use of a sub-sale and leaseback arrangement designed to take advantage of sub-sale relief and the Islamic financing exemption. HMRC won this case, but there was much postulation and variations of opinions in the case at all appeal levels. The case eventually found its way to the Supreme Court. Key points coming out of this decision centred around the acknowledgement that the rules were deliberately drafted widely, to catch a wide range of transactions and the realisation that there did not need to be a tax avoidance motive for s75A to apply, despite the section in the legislation being headed “anti-avoidance”.
In the recent case of Hannover Leasing Wachstumswerte Europa Beteiligungsgesellschaft MbH and another v HMRC , there was a pre-sale reorganisation involving the distribution of the property from a partnership to its limited partner, a Guernsey Property Unit Trust (GPUT). This was followed by a sale of the units in the GPUT and then a post-acquisition restructuring to move the property to another vehicle. Where there is a transfer of shares which is the first of a series of transactions, this is ignored for the purposes of s75A. This allows buyers to acquire shares in a company or units in a unit trust and extract the property from that company or unit trust. In Hannover, because the first transaction was a transfer of the property and not a transfer of shares, all of the transactions could be considered under s75A and SDLT levied on the consideration paid for the units in the GPUT. The Tribunal also confirmed that there did not need to be a tax avoidance motive for s75A apply. This is contrary to HMRC’s manual, which states that in their view, s75A should only apply where there is tax avoidance. The Tribunal stated that s75A self-defined the kind of tax avoidance that was within its scope. HMRC has not yet updated its guidance in light of the Project Blue and Hannover decisions, but has said that it is currently under review.
The Hannover decision came as a surprise to practitioners and taxpayers, as HMRC has long accepted that share or unit sales were not subject to SDLT. This may prompt reconsideration of the SDLT position and potential SDLT liability on legacy transactions, which have involved some kind of pre-sale reorganisation. On the positive side, the judgement does provide some signposts as to how to structure transactions in a way that means s75A will not apply and the Tribunal indicated that had the steps here been implemented in a different order, there would have been no SDLT charge.
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