The Court of Appeal has upheld HMRC's assessment for SDLT in The Tower One St George Wharf Ltd v HMRC [2025] EWCA 1588 albeit on a different basis to the UT. Whilst the Court overturned the decision of the UT on the application of market value provisions in FA 2003 section 53, it nevertheless held that the anti-avoidance provision in section 75A could be applied to the arrangements involving inserted steps to obtain a corporation tax advantage.
As we point out in our recent Tax Journal article, the Court's decision is a clear statement of the courts' willingness to apply anti-avoidance provisions purposively in the SDLT context. The main purpose test for group relief is not easily circumvented, and the market value rule and s.75A provide HMRC with powerful tools to counteract tax-motivated arrangements. Taxpayers and advisers should take heed: the days of "mainly ignored" anti-avoidance rules in SDLT may be well and truly over. Indeed, if the Court's analysis of the correct approach to the calculation of consideration for s.75A purposes is correct, then taxpayers should be aware that tax motivated arrangements might even result in SDLT being due on more than the market value of the property transferred, providing an added layer of jeopardy to such arrangements.
Background
The case concerns arrangements to transfer a property to a new SPV to ring-fence risks and potential liabilities associated with a development and provide greater financial flexibility by opening up the prospect of securitised borrowings from a wider group of lenders. The group concerned approached PwC for advice on this proposal and PwC suggested that a corporation tax advantage might be obtained by entering into arrangements involving an intermediate intra-group transfer to achieve a tax free step-up in the base cost of the property. The value of the property at the time was £200m and its book value was only £30m. The arrangements involved the grant of a lease to a group entity (B64), the sale of the shares in that entity intra-group and an eventual transfer of the lease to the intended SPV. (It was accepted that, ultimately, these arrangement failed to achieve the intended step-up in base cost.) These steps were carried out and the taxpayer claimed SDLT group relief on the transfer of the property by the intermediate group entity to the SPV. HMRC rejected that claim on the basis that FA 2003 Schedule paragraph 2(4A) denies group relief where "a transaction forms part of arrangements of which the main purpose, or one of the main purposes, is the avoidance of liability to tax", including corporation tax.
The taxpayer appealed, but the FTT upheld HMRC's decision. The Upper Tribunal rejected the taxpayer's appeal, holding that the arrangements involving an inserted step to obtain a corporation tax advantage had a main purpose of avoidance of tax such that SDLT group relief was not available in relation to the transfer of the property as part of those arrangements. The UT held that neither the fact that the arrangements failed to achieve the hoped for corporation tax advantage nor the fact that the ultimate aim of the transaction had a commercial motive prevented the application of the anti-avoidance provision in this case. The UT held that the anti-avoidance provisions applied irrespective of whether the arrangements did in fact achieve any tax advantage, noting that in contrast to other anti-avoidance provisions which sought, for example, to simply deny a tax advantage, the legislation in this case clearly denied SDLT group relief for arrangements that had a tax avoidance main purpose. The anti-avoidance provision applies where the relevant purpose exists and whether or not any tax is actually avoided is irrelevant.
On the valuation of the transaction, the UT agreed with HMRC that the market value provisions in FA 2003 s.53 applied in this case.
The taxpayer has appealed the market value issue to the Court of Appeal, but did not pursue the wider point on tax avoidance purpose and SDLT group relief. HMRC argued that even if the market value provisions did not apply, then the anti-avoidance provision in FA 2003 s.75A applied with the result that the correct calculation of SDLT produced a figure at least as high as the market value assessment in this case (and potentially higher).
Market value provisions
The taxpayer argued that the transfer of the property from B64 to the connected SPV (which was made at book value of £30m) was not subject to the SDLT market value rule in FA 2003 s.53. This is subject to an exceptions in s.54 and the taxpayer relied on one of these exceptions relating to a distribution of assets. However, s.54(4)(b) provides that this exception does not apply where the property has "within the three years of the effective date of the transaction" been the subject of a transaction in respect of which group relief was claimed. HMRC contended that this exclusion applied since B64 had applied for group relief.
The taxpayer countered that the exclusion did not apply since (a) the application by B64 for SDLT group relief was made on the same day as the transfer to the SPV and (b) the claim for group relief had not been granted (HMRC had concluded that the group relief claim made by B64 did not need to be considered because they considered sub-sale relief to be available).
The Court of Appeal has held that a purposive approach must be adopted in the construction of FA 2003 ss.53 and 54. It was clear that these provisions were intended to work in tandem with the SDLT group relief clawback provisions. In particular, s.54(4)(b) dovetails with the provisions withdrawing group relief if the transferee leaves the group within three years and the evident intent is that the clawback provision should not be capable of being sidestepped via a distribution of the property which falls within the market value rule exception in s.54(4). In those circumstances, the word "claim" in this context must be read as limited to a claim that qualifies for group relief and which has enjoyed the benefit of group relief. Limiting the provision in this way "properly addresses the mischief at which the proviso is aimed, namely a circumvention of [group relief withdrawal], and achieves its purpose".
The correct interpretation of "effective date" involved recognising that a literal interpretation of the drafting would give rise to a loophole allowing transactions on the same day of the distribution to escape its application, "a result which would be absurd". In this case it was necessary to recognise that "the draftsman slipped up" and apply the approach adopted by the House of Lords in Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586. In circumstances such as this, it was open to the Court to correct the drafting to ensure that the legislation did not operate to provide the loophole. The Court explained that it was not necessary to decide the precise wording that the draftsman should be treated as having used, but one approach would be to treat the words "preceding the effective date" as "preceding and including the effective date".
Having decided that the market value provisions did not apply, it was then necessary to consider HMRC's alternative argument that the transaction was in any event caught by section 75A.
Did section 75A apply to the transaction?
Section 75A applies on a transfer from V to P where "a number of transactions (including the disposal and acquisition) are involved in connection with the disposal and acquisition ("the scheme transactions") and the sum of the amounts of stamp duty land tax payable in respect of the scheme transactions is less than the amount that would be payable on a notional land transaction effecting the acquisition of V's interest by V.
HMRC argued that the market value assessment could be maintained on the basis of the application of section 75A, which would operate to deem a notional land transaction between SGSL and the appellant for not less than its market value. The taxpayer argued that the notional transfer postulated by s.75A would have qualified for group relief. Alternatively, if group relief was not available, then the notional transaction would be a distribution by SGSL falling within the market value exception in s.54(4)(b).
The Court noted that the resolution of these arguments depended on the extent to which statutory fictions must be treated as replacing actual facts "or put another way how far the deeming required by the relevant provisions should be taken". In essence, this is primarily a question of construction. Whilst the notional transaction "attracts any relief... which it would attract if it were an actual transaction", it was also necessary to take into account the restrictions on group relief including the tax avoidance purpose. The taxpayer argued that a direct notional transfer would not have an avoidance purpose, but the Court rejected this argument. While it was the case that the tax avoidance purpose could not be achieved without the intermediate steps, including the transactions ignored by s.75A, the legislation does not indicate that those purposes should be ignored and the Court considered that the restrictions on group relief should be applied in the normal way. The Court also rejected the argument that the exception in s.54(4) prevented the application of market value to the notional disposal. The notional transfer did not require SGSL to be treated as having made a distribution of the property that fell within the scope of s.53.
Finally, HMRC argued that s.75A can lead to consideration which is higher than the market value of the notional transaction. In particular, s.75A(5) requires the aggregation of the amounts paid under all the scheme transactions, including the B64 share sale and even the capital contribution, on the basis that these were all amounts received by persons connected with SGSL. The taxpayer argued that this cannot be correct and that, in particular, the notional consideration should not include amounts received not only by V but by persons connected to V. Rather the consideration should be confined to the amount received for the land transaction (so excluding consideration for the share sale). The Court rejected this argument. The natural meaning of the provision was that Parliament intended to catch the receipt of consideration whether by V, by connected parties or by both. As a result, the Court agreed with HMRC's approach that the consideration for the share sale, the grant of the lease and the transfer all needed to be included in the calculation of the consideration for the notional transfer and (without having to consider HMRC's argument on the capital contribution element), it was clear that the chargeable consideration on the notional consideration exceeded the SDLT paid and s.75A was engaged.
Comment
The decision of the Court of Appeal on the meaning of "claim for group relief" in this case at least brings an element of sanity back to the provisions. To treat the relevant provisions as excluded whenever a claim had been made (whether or not it was a valid claim) involved a degree of absurdity in itself.
However, the Court has adopted a wide approach to the application of s.75A anti-avoidance provisions. In particular, the Court did not consider that the wider anti-avoidance purpose involved in the full scheme transactions could be ignored in determining the SDLT payable on the notional land transaction, even though the notional transaction essentially ignored those elements of the scheme transactions that were put in place to achieve the wider corporation tax advantage sought.
