In The Tower One St George Wharf Ltd v HMRC [2025] EWCA Civ 1588 the Court of Appeal has concluded that the stamp duty land tax (SDLT) general anti-avoidance rule (section 75A FA 2003) applied to a series of intra-group land transactions carried out by the taxpayer. A number of points of more general interest were also discussed.
Background
Our previous article on the Upper Tribunal decision provides general background to the case. Broadly, the Berkeley group of companies undertook a series of intra-group transactions on a single day, partly in a failed attempt to reduce corporation tax:
- A £1,000 capital contribution was made to Berkeley Sixty-Four Limited (B64) to create distributable reserves;
- St George (South London) Limited (SGSL), as legal owner (with St George plc as beneficial owner), granted a 999-year lease of a property to B64 for £30,198,814 (book cost);
- The Tower One St George Wharf Limited (Tower One) acquired B64’s entire share capital for £170,000,001; and
- B64 transferred the property to Tower One, for £30,248,814 (book cost plus an accounting adjustment).
Only step 4 was disputed. The findings of the Upper Tribunal that SDLT group relief was unavailable for steps 2 and 4 due to the tax avoidance motive was not disputed. However, HMRC were out of time to challenge step 2 as they had incorrectly thought subsale relief would apply.
The taxpayer argued in respect of step 4 that a distribution exception applied to the SDLT on market value rule for transfers to a connected company and hence SDLT was payable on just what was paid, not the c.£200 million value of the Tower. The Court agreed but then considered whether section 75A was engaged.
The distribution exception – taxpayer win
The distribution exception does not apply where the subject matter of the transaction “has, within the period of three years immediately preceding the effective date of the transaction, been the subject of a transaction in respect of which group relief was claimed by the vendor.”
The Court agreed with the taxpayer that the reference was restricted to a ‘valid’ claim for relief. To guide its interpretation, the Court considered the mischief at which the legislation is aimed. As it had been established that the claim at step 2 was not valid because of a corporation tax avoidance motive, the exception from the market value charge applied and the consideration was therefore the actual amount paid: £30,248,814.
A back-up argument by the taxpayer that the claim was made on the effective date of the transaction and so not in the three years prior to the effective date was dismissed on the basis the Court can correct an obvious drafting error in the statute where the purpose of the legislation is clear, the drafting error defeats that purpose and it is clear what the correction is.
Section 75A – HMRC win
Section 75A is an anti-avoidance rule which applies where transactions are involved in connection with the disposal and acquisition of an interest in land and SDLT is reduced as a result. A notional transaction is then deemed between the original seller (V) and ultimate purchaser (P), with consideration being (broadly) the largest aggregate amount given or received for the scheme transactions (unless such a transaction is ‘incidental’). Reliefs can apply to this notional transaction.
The Court affirmed that V was SGSL and P was Tower One and steps 2 to 4 were scheme transactions on the basis that ‘involved in connection with’ has a very broad meaning. In particular, step 3 was “an important component of the plan which vested the [Tower] in the Appellant”. The taxpayer’s argument that a notional transaction cannot have an avoidance motive and so group relief was available was rejected. Fowler v HMRC [2020] UKSC 22 (which considers how far a statutory fiction can be taken) was cited as the basis for ascribing to the notional transaction the motives of the parties in respect of the actual transactions. Conversely, the statutory fiction that a nominee beneficially as well as legally grants a lease does not extend to allowing that transaction to be seen as a distribution of the assets of that nominee and so the distribution exception from the market value charge did not apply to the notional transaction.
However, the Court ascribed consideration from the actual transactions (steps 2 to 4) to the notional transactions rather than market value as the former was in aggregate higher. It rejected a taxpayer argument that step 3 was ‘incidental’ (and so consideration for it should be ignored) on the basis that “In reality, the Transfer was conditional upon the share sale having first occurred, and it did in fact form part of the series of transactions by which the [Tower] found its way from SGSL to the Appellant”.
The aggregate consideration for steps 2 to 4 was by £1 greater than the aggregate consideration which should have been charged absent section 75A - had HMRC not been too late to charge step 2 there would have been a market value charge at step 2 on £200,198,814 and as the distribution exception applied at step 4, on £30,248,814. So section 75A was engaged and SDLT was due on £230,447,629 (albeit HMRC had indicated they would not pursue an amount based on a number above the market value of the Tower).
Comment
Had the taxpayer paid £1 less for the shares in B64, HMRC would have lost the case as they had missed assessing SDLT on transfer at step 2, so it is possible the Court’s decision was motivated by a desire to prevent the taxpayer profiting from HMRC’s error. Nevertheless, the case is of considerable interest, shedding light on the meaning of key terms of section 75A, the extent to which deeming provisions can be applied, using the ’mischief rule’ for interpreting anti-avoidance legislation purposively, and when drafting errors can be corrected by the courts.
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