Effective Group Relief Claims, Case 3 Distributions and the Reach of SDLT s.75A

Case: The Tower One St George Wharf Ltd v Commissioners for His Majesty's Revenue and Customs [2025] EWCA Civ 1588
Court: Court of Appeal (Civil Division), England and Wales
Date: 10 December 2025

1. Introduction

This Court of Appeal decision is a significant development in the law of Stamp Duty Land Tax (“SDLT”), particularly in three interconnected areas:

the scope of the “Case 3” exception in s.54(4) Finance Act 2003 (“FA 2003”) to the market value rule in s.53 for connected-party transactions;
the meaning and operation of the SDLT anti-avoidance rule in s.75A FA 2003 and associated provisions ss.75B–75C; and
the interaction between SDLT reliefs (notably group relief under Sch 7) and notional transactions under s.75A.

The appeal arose out of a complex intra-group restructuring within the Berkeley group, implemented on professional advice and designed primarily to secure a corporation tax “step-up” of the base cost of a high-value residential tower (the “Tower”) at St George Wharf, Vauxhall. The SDLT consequences of those steps became the focus of dispute.

At its core, the case concerns whether the Appellant, The Tower One St George Wharf Ltd (“Tower One”), should be taxed:

by reference to the actual consideration paid for an intra-group lease transfer (£30.248m, giving SDLT around £1.2m); or
by reference to market value of the property interest (£200m, SDLT £8m).

This turned on:

the construction of s.54(4)(b) FA 2003 (the “Case 3” proviso) – specifically:
- whether a prior “claim” for group relief includes an invalid or ineffective claim; and
- whether the three-year look-back “immediately preceding the effective date” includes earlier transactions on the same day; and
whether, even if the Case 3 exception applied, HMRC could nevertheless invoke s.75A to reconstruct a notional direct grant of the lease from the trustee company SGSL to the Appellant, thereby restoring a (market value or higher) SDLT charge.

The Court (Lewison LJ giving the lead judgment, with Warby LJ and Asplin LJ agreeing) allowed the taxpayer’s appeal on the s.54(4)(b) issue, but nevertheless dismissed the overall appeal because the anti-avoidance rule in s.75A applied and produced an SDLT liability at least as high as the assessment under challenge.

2. Summary of the Judgment

2.1 Outcome

Ground 1 (s.54(4)(b): meaning of “claimed”): Allowed. The phrase “a transaction in respect of which group relief was claimed by the vendor” in s.54(4)(b) refers only to earlier transactions where group relief was actually enjoyed (i.e. the transaction was exempt from charge as a result). A merely asserted, invalid or ineffective claim does not engage the proviso and so does not disapply Case 3.
Ground 2 (s.54(4)(b): three-year period): Rejected. The “period of three years immediately preceding the effective date of the transaction” includes transactions earlier on the same calendar day as the effective date. The court corrected an obvious drafting error by applying Inco Europe-type reasoning.
Section 75A: Applied. Even though Case 3 excluded s.53 on the actual transfer to the Appellant, s.75A deemed a notional transaction in which:
- the lease was treated as granted directly by SGSL (the trustee) to the Appellant;
- group relief on that notional transaction was unavailable because the real-world arrangements had a main purpose of avoiding corporation tax, triggering para 2(4A) Sch 7;
- the Case 3 exception could not apply because SGSL, being a bare trustee, could not be treated as making a “distribution of its assets”; and
- the chargeable consideration on the notional transaction (computed under s.75A(5)(b)) exceeded the aggregate SDLT base of the actual scheme transactions, thereby satisfying s.75A(1)(c).

The Court therefore upheld the SDLT assessment of £8m, albeit on different reasoning to the tribunals below.

2.2 Key New Principles

“Claimed” in s.54(4)(b) FA 2003 means an effective, relief-conferring claim, not a mere assertion. The Case 3 proviso is purposively confined to situations where group relief has actually been obtained on an earlier transaction: it is linked to the degrouping clawback in para 3 Sch 7 and is aimed at preventing avoidance of that clawback via distributions.
The three-year look-back in s.54(4)(b) includes earlier transactions on the same effective date. The phrase “within the period of three years immediately preceding the effective date” is read purposively and corrected to avoid a one-day lacuna.
On a s.75A notional transaction, reliefs are applied with all their “terms and restrictions”, including anti-avoidance tests based on actual purposes. The notional transaction is not “cleansed” of the tax-avoidance purposes motivating the real-world scheme.
The Case 3 distribution exception cannot be invoked where the vendor is a bare trustee under Sch 16 para 3(4). The deeming of the trustee as vendor for SDLT purposes does not extend to deeming it a beneficial owner capable of “distributing” its own assets.
“Scheme transactions” and “incidental transactions” under ss.75A–75B are construed realistically and widely. A share sale within the group, integral to a tax-driven step plan, is a scheme transaction and is not “merely incidental”.
“Or a person connected with V” in s.75A(5)(b) is inclusive. Consideration received by V and by connected persons is aggregated when computing the chargeable consideration of the notional transaction.
“Payable” in s.75A(1)(c) means “liable to pay”, not “assessed” or “actually collected”. The Court follows the reasoning of the Court of Appeal in Project Blue on this point.

3. Factual and Transactional Background

3.1 The Property and the Group

The case concerned the SDLT consequences of an internal reorganisation of interests in “the Tower”, a 50-storey residential building forming part of the St George Wharf development in Vauxhall, London. The structure was:

St George (South London) Ltd (“SGSL”) acquired the St George Wharf site in 1997 and, in 2000, sold the beneficial interest to St George plc (“St George”) but retained legal title as bare trustee.
At the time of the scheme (5 July 2011), the Tower had
- a book cost of c. £30m; and
- a market value of c. £200m.

3.2 The Step Plan (“the scheme”)

On 5 July 2011, the following steps were implemented within the Berkeley group:

A £1,000 capital contribution to a new SPV, Berkeley Sixty-Four Ltd (“B64”), to give it positive distributable reserves.
SGSL granted B64 a 999-year lease of the Tower (the “Lease”) at a premium of £30,198,814 (its book cost) plus £1 annual rent.
A development management agreement appointed St George as project manager.
The Appellant, Tower One (another SPV), acquired all the shares in B64 for £170,000,001.
B64 then transferred the Lease to Tower One at its carrying value, £30,248,814, and novated existing agreements for lease of units.

The First-tier Tribunal (“FTT”) found that there were genuine commercial reasons to hold the Tower in an SPV (risk ring-fencing and potential securitisation). However, the particular PwC-advised step plan was adopted to secure a corporation tax advantage by stepping up the asset from book cost to market value without a corporation tax charge. That corporation tax planning ultimately failed, but the SDLT consequences remained.

3.3 SDLT Returns and HMRC’s Assessment

B64’s SDLT return on the grant of the Lease and Tower One’s return on the Lease transfer both claimed SDLT group relief under Sch 7 FA 2003.
HMRC later decided:
- the Lease grant to B64 benefited from sub-sale relief under s.45 FA 2003 (as then in force), so B64’s group relief position did not require formal determination; and
- group relief on the Lease transfer to Tower One was blocked by para 2(4A) Sch 7 because the transaction formed part of arrangements with a main purpose of avoiding corporation tax.
HMRC assessed Tower One to SDLT of £8m (4% of the £200m market value of the Lease), on the basis that:
- s.53 applied to the transfer between connected companies;
- no Case 3 exception applied; and
- group relief was not available.

4. The Tribunals Below

4.1 First-tier Tribunal

Before the FTT, Tower One argued:

Primary: group relief applied, so no SDLT was payable on the transfer of the Lease from B64 to Tower One.
Fallback: if group relief was disallowed, then s.53 should not apply because the Case 3 exception in s.54(4) applied: SDLT should be charged only on the £30.248m actual consideration.

HMRC argued, in essence:

that s.45 (sub-sale) recharacterised matters as a direct transfer from SGSL to Tower One, with group relief denied and s.53 engaged; or failing that,
that even on the B64–Tower One transfer analysis, para 2(4A) Sch 7 blocked group relief and s.53 applied; and
in any event s.75A could be invoked.

The FTT:

rejected the s.45 argument;
agreed that para 2(4A) Sch 7 blocked group relief on the B64–Tower One transfer;
held that Case 3 was disapplied by s.54(4)(b) because B64 had claimed group relief on the Lease grant within the preceding three years; and
found s.75A inapplicable because it would not increase the SDLT payable.

4.2 Upper Tribunal

On appeal to the Upper Tribunal (“UT”), Tower One pursued two grounds:

the FTT wrongly held that group relief was denied by para 2(4A) Sch 7; and
the FTT erred in holding that Case 3 was disapplied by s.54(4)(b).

The UT dismissed both grounds, giving a primarily literal reading to “claimed” in s.54(4)(b) and treating the three-year period as including the effective date.

By the time of the Court of Appeal hearing, Tower One no longer pursued group relief on the actual transfer and confined its case to the operation of the Case 3 exception and, in consequence, the proper base for the SDLT charge.

5. Detailed Analysis

5.1 Statutory Framework (in outline)

5.1.1 The General SDLT Rule and s.53 Market Value

Normally SDLT is charged on the actual consideration for a “land transaction”: ss.50, 55 and Sch 4 para 1(1) FA 2003.
Section 53 creates a market value rule where the purchaser is a company and the vendor is “connected” with the purchaser. In that case:
- the chargeable consideration is deemed to be “not less than” market value of the interest acquired (plus any rent on a lease).

5.1.2 Section 54 – Exceptions from s.53

Section 54 sets out three “Cases” in which s.53 does not apply:

Case 1 & Case 2: broadly, trust management situations (where the company holds as trustee in the course of a trust management business, or is connected solely by reason of certain trust relationships).
Case 3 (s.54(4)) – central in this case:
- the vendor is a company; and
- the transaction is, or forms part of, a “distribution of the assets” of that company (including in a winding up); but
- Case 3 does not apply if, within the three years immediately preceding the effective date, the subject-matter (or a derived interest) has been the subject of a transaction in respect of which group relief was claimed by the vendor (s.54(4)(b)).

5.1.3 Group Relief and its Restrictions

Group relief (Sch 7 Pt 1) makes intra-group land transfers exempt from SDLT when the vendor and purchaser are in the same group at the effective date (para 1).
Relief must be claimed in an SDLT return or amendment (s.62(3)).
Para 2 Sch 7 restricts group relief:
- para 2(4A) denies relief where the transaction:
  - is not effected for bona fide commercial reasons; or
  - forms part of arrangements where the main purpose, or one main purpose, is the avoidance of liability to “tax” (widely defined to include income tax, corporation tax, capital gains tax and SDLT).
Para 3 Sch 7 is a clawback rule: if, within three years of a group-relieved transaction, the transferee leaves the group while still holding the relevant interest (or a derived interest), group relief is withdrawn and a tax charge arises by reference to market value at the time of degrouping.

5.1.4 Bare Trustees – Sch 16 para 3 FA 2003

General rule: where a person acquires as bare trustee, Part 4 FA 2003 treats the beneficial owner as acquiring the interest (para 3(1)).
Exception for leases: special rules for grants of leases to and by bare trustees:
- para 3(4): where a lease is granted by a bare trustee, the trustee is treated, for SDLT on that grant, as the vendor of the interest disposed of, even though it is not the beneficial owner.

This deeming provision is crucial to the s.75A analysis, because the notional transaction is framed as a grant of the Lease by SGSL to Tower One, with SGSL deemed to be “vendor”.

5.1.5 Sections 75A–75C – Anti-avoidance

Section 75A applies where:

V disposes of a chargeable interest and P acquires it or a derived interest (s.75A(1)(a));
a number of “scheme transactions” (broadly defined) are “involved in connection with” that disposal and acquisition (s.75A(1)(b)); and
the sum of SDLT payable on the scheme transactions is less than that which would be payable on a notional direct transfer from V to P at completion (s.75A(1)(c)).

If engaged:

land transactions within the scheme are disregarded for SDLT (s.75A(4)(a));
a notional land transaction is created in which V directly transfers its chargeable interest to P (s.75A(4)(b)); and
the chargeable consideration is the largest amount (or aggregate amount) given or received for the scheme transactions (s.75A(5)), including amounts received by connected persons.

Section 75B requires “incidental” transactions to be ignored in the consideration computation and s.75C:

ignores certain share transfers as scheme transactions if they would otherwise be the first in the series (s.75C(1));
applies all SDLT reliefs to the notional transaction “as if it were an actual transaction” but “subject to the terms and restrictions of the relief” (s.75C(2));
applies s.53’s connected company market value rule to the notional transaction (s.75C(6)); and
treats SDLT already paid on disregarded transactions as paid on the notional transaction (s.75C(10)).

5.2 Case 3 and the Meaning of “Claimed” in s.54(4)(b)

5.2.1 The Competing Constructions

The key phrase in s.54(4)(b) is:

“… 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 issues were:

Does “claimed” mean any assertion of relief in a return, even if invalid, later withdrawn or time-barred? (HMRC and UT’s approach.)
Or does it mean only a transaction which in fact enjoyed group relief – i.e. was exempt from SDLT by virtue of para 1 Sch 7? (Appellant’s purposive approach.)

The Court adopted the latter.

5.2.2 Purpose and “Mischief” of the Proviso

The Court undertook a purposive construction, guided by modern authority (R (O), Cobalt Data Centre, Rossendale): statutory words must be read in their wider statutory context and with their evident purpose in mind.

Two contextual points were decisive:

Link to the three-year degrouping clawback (para 3 Sch 7).
Paragraph 3 applies where:
- a transaction is “exempt from charge” by virtue of group relief (para 1); and
- the transferee leaves the group within three years while still holding the asset (or a derived interest).
It therefore presupposes group relief has not just been claimed, but actually allowed. The Court regarded s.54(4)(b)’s backward-looking three-year rule as designed to mirror and protect this forward-looking clawback: Parliament did not intend Case 3 to be used as an escape route from what para 3 is otherwise meant to achieve.
Consistency of “claim” with actual exemption.
Section 62(3) makes a “claim” a formal requirement to obtain group relief, but para 3(1) speaks of a transaction “that is exempt from charge by virtue of paragraph 1”. This language ties the relevant earlier transaction, for both para 3 and Case 3, to instances where relief has been successfully obtained.

From this, the Court concluded that the “mischief” of s.54(4)(b) is only present where an earlier intra-group transaction has actually benefited from group relief and there is a potential degrouping charge that might be sidestepped by a distribution. If no relief was ever properly available or enjoyed, there is no mischief to address.

5.2.3 Incoherence and Harshness of HMRC’s Literal Reading

The Court highlighted serious practical and policy problems with HMRC’s literal approach:

On HMRC’s case, the proviso would be engaged even where:
- a group relief claim had been formally rejected by HMRC; or
- a claim had been withdrawn; or
- HMRC had consciously but wrongly treated the transaction as relieved on another basis (e.g. sub-sale relief), and the time for assessment then expired.
In all such cases, no group relief is in substance enjoyed, yet Case 3 would still be disabled — often producing a quasi-penal outcome.
That construction also sat uneasily with HMRC’s own published guidance. The SDLT Manual (SDLTM30220), echoing an early Tax Bulletin, states that HMRC does not intend s.54(4) to prevent Case 3 relief where earlier group relief has been clawed back under para 3 Sch 7. But clawback itself presupposes a successful claim. HMRC’s apparent concession presumes that “claimed” relates to an effective claim, not a bare assertion — undermining their litigation position.

The Court emphasised that the inconsistency in HMRC’s practice did not itself determine the case; rather, it corroborated the purposive reading: the published material, issued close in time to the statutory enactment, was a legitimate contextual indicator of Parliament’s intended target.

5.2.4 Practical Concerns About Uncertainty

HMRC argued that reading “claimed” as “successfully claimed” would create uncertainty: at the time of filing an SDLT return, a purchaser cannot know whether the vendor’s group relief claim will eventually succeed or be withdrawn.

The Court rejected this objection:

All tax returns are filed on a “best of knowledge” basis and may be amended; SDLT is no exception (Sch 10 FA 2003).
Even on HMRC’s reading, the purchaser must investigate whether the vendor has made or may later make a group relief claim – there is no bright-line certainty.
Interdependence between group companies’ tax positions is common (e.g. for capital gains, where past reliefs affect current disposals). The need to monitor other companies’ claims is not an anomalous feature of the Appellant’s construction.

5.2.5 Application to the Facts

On the facts, B64’s group relief claim on the Lease grant:

was never validly available, because the same para 2(4A) Sch 7 anti-avoidance reasoning that denied group relief to Tower One would have denied it to B64; and
was effectively superseded by HMRC’s erroneous view that sub-sale relief applied.

Thus B64 never actually “enjoyed” group relief; there was only an ineffective claim. Properly construed, s.54(4)(b) was therefore not engaged, and Case 3 remained available for the B64–Tower One Lease transfer.

Result on Ground 1: The Court held that “a transaction in respect of which group relief was claimed” in s.54(4)(b) refers only to a transaction which in fact enjoyed group relief (was exempt from charge). An invalid, ineffective or withdrawn claim is ignored. On that basis, Case 3 applied to the B64–Tower One transfer and s.53’s market value rule was disapplied for that actual transaction.

5.3 The Three-Year Look-Back and Same-Day Transactions (Ground 2)

5.3.1 The Problem

“Effective date” is a defined term in s.119 FA 2003 and generally means the date of completion of the transaction. The phrase in s.54(4)(b) is:

“within the period of three years immediately preceding the effective date of the transaction”.

Read literally, this period would end at midnight at the start of the effective date, leaving a gap between that moment and actual completion later that day. Thus, any group-relieved transaction occurring earlier on the same calendar day as the distribution would lie outside the three-year look-back — a clear drafting glitch.

5.3.2 Correcting the Drafting Error – Inco Europe

The Court invoked the classic Inco Europe test for judicial correction of obvious drafting errors. Lord Nicholls there held that the court may add/omit/substitute words where it is “abundantly sure” of:

the intended purpose of the provision;
the fact that the draftsman and Parliament inadvertently failed to give effect to that purpose; and
the substance (not necessarily exact words) of what Parliament would have enacted had it spotted the error.

Here:

Purpose: to prevent Case 3 applying where, in the three years up to the transfer, there has been an intra-group transaction enjoying group relief – clearly including one earlier on the same day.
Error: transposing the forward-looking three-year period in para 3 Sch 7 (“beginning with the effective date”) into a backward-looking context, without adjusting the language to avoid a one-day gap.
Correction: the provision must be read as including the effective date (e.g. “preceding and including the effective date”) or by treating the three-year period as running to the moment of the transaction. The precise drafting formula is not critical; the substance is clear.

The Court preferred the UT’s substance-over-form solution (the three years before the transaction), while rejecting the FTT’s notion of an “effective time” (incompatible with the defined term “effective date”).

Result on Ground 2: The three-year look-back includes transactions occurring earlier on the same date as the effective date. The literal reading was rejected as producing an absurd loophole and corrected in line with Inco Europe. However, given the result on Ground 1, this was not decisive in Tower One’s favour.

5.4 Section 75A and the Notional Transaction

Once Case 3 was held to apply to the actual B64–Tower One transfer, s.53’s market value rule dropped out on that transaction. The question then became whether HMRC could nevertheless justify the £8m assessment by invoking s.75A.

5.4.1 Threshold Conditions in s.75A(1)

There was no dispute that:

SGSL (“V”) disposed of a chargeable interest (the Lease) and Tower One (“P”) acquired a chargeable interest deriving from it (s.75A(1)(a)).
Multiple “scheme transactions” were “involved in connection with” that disposal and acquisition (s.75A(1)(b)), including:
- the capital contribution to B64;
- the Lease grant by SGSL to B64;
- the share sale of B64 to Tower One; and
- the Lease transfer from B64 to Tower One.

The real battle centred on condition (c): whether “the sum of the amounts of SDLT payable in respect of the scheme transactions” was less than the SDLT that would be payable on the notional direct transfer from SGSL to Tower One.

5.4.2 Meaning of “Payable” in s.75A(1)(c)

Here the Court of Appeal’s earlier judgment in Project Blue (CA) was critical. In that case, Patten LJ and Lewison LJ held that:

“payable” means “liable to pay” (as in s.85(1): “The purchaser is liable to pay the tax…”);
it does not turn on HMRC’s later conduct (e.g. issuing a closure notice or failing to assess); and
HMRC’s mistakes in administration cannot themselves trigger or avoid s.75A.

Although the Supreme Court reversed the Court of Appeal in Project Blue on other grounds, those specific comments were not disapproved and remain good law. HMRC expressly did not invite the Court to depart from them.

Applied here, “SDLT payable” included the SDLT legally chargeable on B64’s Lease acquisition (market value basis, with group relief denied by para 2(4A) Sch 7), even though HMRC had never assessed B64 due to their mistaken view about sub-sale relief. The failure to assess did not extinguish the underlying liability for the purposes of s.75A(1)(c).

5.4.3 Reliefs on the Notional Transaction – s.75C(2)

Section 75C(2) provides that the notional transaction:

“attracts any relief under this Part which it would attract if it were an actual transaction (subject to the terms and restrictions of the relief).”

Tower One argued that the notional direct Lease grant from SGSL to Tower One:

would have been a straightforward intra-group transfer qualifying for group relief; and
failing that, would have been a distribution by SGSL engaging Case 3 and so exempt from s.53’s market value rule.

The Court rejected both arguments.

(a) Group relief on the notional transaction

Tower One contended that, because s.75A constructs a “non-avoidance counterfactual”, the notional transaction should be tested for relief without reference to the avoidance purposes which tainted the actual scheme.

The Court disagreed, for several reasons:

The notional transaction is fixed by s.75A (its nature, parties, date and chargeable consideration). It is not a free-standing hypothetical scenario in which one may assume away inconvenient real-world motives.
Section 75C(2) expressly applies the “terms and restrictions” of reliefs. For group relief, this includes the anti-avoidance restriction in para 2(4A) Sch 7, which requires examining whether the transaction “forms part of arrangements” with a main purpose of avoiding various taxes.
The FTT had found as a fact that the series of transactions on 5 July 2011 formed a single set of arrangements with a main purpose of avoiding corporation tax. Those arrangements necessarily encompassed SGSL’s grant of the Lease and Tower One’s acquisition of it.
Applying the Fowler principles on statutory “deeming”:
- one must not “boggle” at the inevitable consequences of the notional transaction, but
- one does not treat the fiction as rewriting other real-world facts which the deeming provision does not require to be changed – including the parties’ subjective tax-avoidance purposes.
It is not an “inevitable corollary” of deeming a direct Lease grant that we also deem away the tax-avoidance motivation of the actual scheme.

Accordingly, the notional transaction between SGSL and Tower One was itself part of arrangements with a main purpose of avoiding corporation tax and so failed para 2(4A)(b). Group relief was therefore unavailable.

(b) Case 3 on the notional transaction – the bare trustee point

Tower One’s fallback under s.75A was that, even if group relief failed, the notional Lease grant should qualify for the Case 3 exception as a distribution of SGSL’s assets, with s.54(4)(a) satisfied and no equivalent of s.54(4)(b) in play.

This argument relied on:

Sch 16 para 3(4), which deems SGSL to be the vendor of the whole interest on the Lease grant; and
the idea that granting the Lease at an undervalue to a fellow group member is, in substance, a sideways “distribution” (drawing on Aveling Barford principles).

The Court rejected this:

SGSL was, in fact, a bare trustee; it held legal title for St George. The Tower was not SGSL’s asset in any substantive sense: it had no beneficial interest to distribute.
Para 3(4) deems SGSL to be vendor for SDLT purposes, but:
- it does not deem SGSL ever to have been the beneficial owner of the freehold or the Leasehold interest; nor
- does it deem SGSL to hold distributable reserves or other corporate law ingredients of a “distribution”.
Extending the fiction far enough to treat SGSL as making a distribution of “its” assets would go beyond what is “inevitably required” by the deeming and would contradict commercial and trust law realities. That would be inconsistent with Fowler and East End Dwellings.

Thus, the Case 3 exception was not available on the s.75A notional transaction.

5.4.4 Scheme Transactions and Incidental Transactions

(a) Was the share sale a “scheme transaction”?

Tower One argued that the intra-group share sale of B64 for £170m was not “involved in connection with” the disposal and acquisition of the Lease, but was only inserted to achieve corporation tax benefits.

The Court disagreed:

The statutory language “in connection with” in s.75A(1)(b) is deliberately wide.
The step plan, which the group followed carefully, envisaged and required the share sale as a step in the chain that resulted in the Lease ending up in Tower One’s hands.
Even if the Lease could legally have been transferred without the share sale, the actual arrangements implemented made the share sale an integral component of the scheme.

It was therefore a “scheme transaction”.

(b) Was the share sale “merely incidental” (s.75B)?

Tower One contended that, even if the share sale was a scheme transaction, the consideration for it should be excluded because it was “merely incidental” to the land transfer, within s.75B(1).

The Court examined s.75B in context:

A transaction is not incidental if:
- it “forms part of a process, or series of transactions, by which the transfer is effected” (s.75B(2)(a)); or
- the transfer is conditional on its completion (s.75B(2)(b)); or
- it is one of the specified transaction types in s.75A(3) (s.75B(2)(c)).
A transaction “may” be incidental if undertaken solely for a non-land purpose (s.75B(3)), e.g. sale of goods, provision of finance.

Though recognising that the share sale was not a legal precondition for the Lease transfer and was driven by corporation tax objectives, the Court found that:

In reality, the Lease transfer to Tower One was part of a process in which the share sale was a necessary and intended step.
The step plan was followed as such; economically and operationally, the transfer of the Lease was conditional upon the share sale having taken place as designed.
Thus, the share sale formed part of the “process, or series of transactions, by which the transfer is effected”.

Accordingly, the share sale was not “merely incidental” and its consideration could not be excluded under s.75B.

5.4.5 Aggregating Consideration under s.75A(5)(b)

Section 75A(5)(b) defines the chargeable consideration on the notional transaction as the largest aggregate amount “received by or on behalf of V (or a person connected with V) by way of consideration for the scheme transactions.”

HMRC included:

£1,000 capital contribution to B64;
£30,198,814 Lease premium paid by B64 to SGSL;
£170,000,001 share price paid by Tower One for B64; and
£30,248,814 paid by Tower One to B64 for the Lease.

This produced an aggregate of £230,448,629, slightly exceeding the combined SDLT bases of the actual scheme transactions.

The Appellant argued that:

“or a person connected with V” should be read disjunctively, so that one totals amounts received either by V or by connected persons, but not both; and
double-counting the Lease consideration at two levels (SGSL to B64 and B64 to Tower One) was inappropriate.

The Court rejected these submissions:

“Or” in this context is used inclusively. Parliament cannot have intended that the anti-avoidance rule could easily be defeated by splitting consideration between V and its connected companies.
This reading was consistent with judicial treatment of similar wording in other SDLT provisions (e.g. Fox v HMRC concerning s.45 FA 2003).
Double counting of amounts relating to the same underlying asset is not surprising when there are multiple distinct transactions in that asset, and the same pattern of “double counting” exists on the actual SDLT liabilities (Lease grant plus Lease transfer).

On this basis, the calculation under s.75A(5)(b) yielded a higher SDLT base for the notional transaction than the total SDLT base for the real transactions (including the Lease grant to B64 and the Lease transfer to Tower One). Thus, condition s.75A(1)(c) was met and s.75A applied.

6. Complex Concepts Simplified

6.1 SDLT and Connected-Party Market Value Rule

SDLT is usually paid on the price actually paid for a property. But where:

the buyer is a company; and
the seller is “connected” to that company (e.g. part of the same group),

s.53 generally says “ignore the price and use market value instead”. This prevents easy under-valuations between connected parties.

6.2 Case 3 – “Distribution of Assets”

Case 3 is an exception where:

a company distributes property (e.g. as a dividend in specie, or as part of a winding up) to another group company; and
no abuse of group relief is involved (hence the three-year rule in s.54(4)(b)).

The idea is: genuine distributions to shareholders or group members, which are not part of a tax-avoidance reorganisation, should generally not be penalised with a market value SDLT charge.

6.3 Group Relief and Clawback

Group relief lets companies move property around within a group without SDLT. But:

if, within three years, the transferee leaves the group while still holding the property,
the earlier no-SDLT position is “clawed back” – the transfer is retrospectively taxed.

The Case 3 proviso exists so that companies cannot bypass this three-year degrouping clawback by “distributing” the property instead of selling the company out of the group.

6.4 Bare Trustees vs Beneficial Owners

A bare trustee holds the legal title to property for someone else’s benefit. The trustee cannot treat the property as its own, cannot distribute it as if it were its own asset, and has very limited independent powers.

In SDLT:

normally, transactions by a bare trustee are treated as if done by the beneficial owner (Sch 16 para 3(1));
but for grants of leases, the trustee is treated as “vendor” for the limited purpose of working out SDLT (para 3(4)).

That limited deeming does not turn a trustee into an owner with distributable assets.

6.5 Section 75A Anti-Avoidance – Big Picture

Section 75A is designed to catch multi-step tax-driven structures which, taken together, reduce SDLT compared with a simple direct sale/lease.

In essence it asks:

Who really sold the property (V)?
Who really ended up with it (P)?
What price (or economic value) changed hands across all the steps?
Would the total SDLT on all those steps be less than the SDLT on a single, direct transaction from V to P for that total value?

If yes, the law pretends that single direct transaction actually happened, ignores the real steps for SDLT, and charges SDLT on that notional direct transfer.

6.6 “Scheme Transactions” and “Incidental Transactions”

Scheme transactions are all transactions “involved in connection with” getting the property from V to P – including non-land steps (e.g. company share sales, financing arrangements).
Incidental transactions are those which are peripheral and not part of the essential process of transferring the property – e.g. a separate loan or a non-conditional side contract. Their consideration can sometimes be excluded from the SDLT computation under s.75B.

In Tower One, the share sale of B64 was considered central to the step plan and not incidental.

6.7 Deeming Provisions and Their Limits

When legislation says something is “treated as” something else, courts must:

give effect to what Parliament intended to follow from that fiction;
carry it through to its logical consequences; but
not stretch it beyond its intended scope to rewrite other real-world facts, especially where that would create absurd or unjust results.

Here, deeming SGSL as “vendor” for lease purposes did not justify deeming it beneficial owner capable of making a Case 3 “distribution”.

7. Impact and Implications

7.1 For SDLT Planning and Group Reorganisations

Defective group relief claims no longer “contaminate” Case 3.
Taxpayers have clarity that Case 3 is only disapplied by earlier transactions where group relief was actually obtained. Erroneous or invalid group relief entries in historic SDLT returns, without underlying entitlement, should not in themselves block Case 3 – subject, of course, to HMRC’s ability to challenge those historic positions.
However, s.75A looms large.
Even where taxpayers succeed in securing the Case 3 exception on actual transfers, HMRC can still reconstruct a notional direct transfer between different group entities under s.75A. If the overall structure is tax-motivated or artificially complex, s.75A remains a formidable backstop.
Corporation tax motives can taint SDLT group relief.
Group relief is denied not only by SDLT-avoidance motives, but by avoidance of any of the listed taxes (including corporation tax). Here, an attempt to secure a corporation tax “step-up” was enough to deny group relief under para 2(4A) Sch 7 and, crucially, to deny group relief on the notional s.75A transaction as well.
Trust structures need careful handling.
Where property is held by a bare trustee, the ability to use Case 3 on either actual or notional transactions is seriously constrained. The Court makes clear that a trustee cannot be treated as distributing its own assets for Case 3 purposes. Developers and groups frequently using nominee/ bare trust structures will need to factor this into SDLT planning.

7.2 For HMRC Practice and Guidance

HMRC’s SDLT Manual and early Tax Bulletins are given interpretive weight.
The Court did not treat the guidance as binding, but as a useful indicator of the mischief and purpose of the legislation, particularly given its proximity to enactment. HMRC may need to review and, if necessary, align their published practice with this judgment to avoid further incoherence.
“Payable” in s.75A(1)(c) confirmed as “liable to pay”.
This cements a relatively taxpayer-friendly position that HMRC’s failure to assess one party cannot, of itself, activate s.75A against another. It also underscores that s.75A comparisons are done at the time of the scheme, not in light of later administrative events.
Use of s.75A to reach above market value.
Although HMRC did not increase the assessment in this case, the Court accepted in principle that s.75A(5)(b) can yield a chargeable consideration figure greater than market value, particularly where multiple layers of consideration (including for shares and upstream premiums) are aggregated. This highlights the potentially harsh reach of s.75A.

7.3 For Litigation and Statutory Interpretation

Purposive interpretation and misdrafting.
The judgment underscores the courts’ willingness to:
- interpret tax statutes purposively in light of their scheme and objectives; and
- correct obvious drafting errors where the Inco Europe test is satisfied, as with the three-year look-back gap.
- Deeming provisions applied with discipline.
  The application of Fowler and East End Dwellings demonstrates a careful balance: courts will not shy away from the logical consequences of a deeming, but will also resist invitations to treat fictions as re-writing unrelated aspects of reality (such as beneficial ownership or commercial purposes).
- s.75A remains a “wide but mechanical” rule.
  In line with Project Blue, the Court confirms that s.75A is triggered by outcome (a reduced SDLT burden compared to a direct transfer), not by proving a specific avoidance motive. Here, however, motive re-enters the picture via the denial of reliefs (particularly group relief) under their own anti-avoidance conditions.
8. Conclusion

The Tower One St George Wharf decision refines and re-balances the SDLT code in several important respects.

On the one hand, the Court narrows the reach of the Case 3 proviso in s.54(4)(b), holding that it is engaged only by earlier transactions where group relief was actually enjoyed. This prevents Case 3 from being disapplied in a quasi-punitive way due to invalid, rejected or withdrawn group relief claims and aligns the provision squarely with the three-year group relief clawback regime in para 3 Sch 7.

On the other hand, the Court confirms an expansive and rigorous approach to s.75A. Notional transactions do not enjoy a “clean slate”: where actual arrangements have a tax-avoidance purpose (even one relating to another tax such as corporation tax), that purpose flows through to the notional transaction for the purpose of applying the “terms and restrictions” of SDLT reliefs. Group relief can thus be denied both on real and notional transactions. Moreover, bare trustees cannot be treated as making distributions for Case 3 purposes, limiting the scope of that exception in trustee-based structures.

The judgment also clarifies several technical points – the meaning of “payable” in s.75A(1)(c), the breadth of “scheme transactions”, the narrowness of the “incidental” carve-out, and the inclusive reading of “or a person connected with V” in s.75A(5)(b). It exemplifies a modern, purposive approach to tax legislation, tempered by strict discipline in applying deeming provisions and correcting obvious legislative slips.

For practitioners, the key takeaways are:
- Case 3 is more protective than the tribunals had assumed, but only where earlier group relief was genuinely unavailable or refused;
- tax-driven multi-step structures, particularly those aimed at non-SDLT taxes, are highly vulnerable to reconstruction under s.75A; and
- trust structures and intra-group share transfers cannot be relied upon to shield SDLT liabilities where the overall effect is to depress the SDLT base below what a direct transfer would have produced.
Ultimately, Tower One won the battle on s.54(4)(b) but lost the war to s.75A. The case will be a touchstone authority on effective group relief claims, the operation of Case 3, and the reach of s.75A in complex intra-group property rearrangements.