Introduction

Fanning v Revenue & Customs ([2023] EWCA Civ 263) is a pivotal case heard by the England and Wales Court of Appeal (Civil Division) on March 13, 2023. The appellant, Mr. Fanning, pursued a legal challenge against HM Revenue & Customs (HMRC) concerning the applicability of Stamp Duty Land Tax (SDLT) on a property transaction. Central to this case is the interpretation of Section 45 of the Finance Act 2003, which deals with SDLT relief in specific land transaction scenarios.

The dispute arose from Mr. Fanning's purchase of a flat in Grosvenor Square from Glendale Enterprises Four Limited for £5,200,000, with £200,000 allocated to chattels. Mr. Fanning filed an SDLT return claiming no liability, arguing that an ancillary transaction—the granting of an option to San Leon Energy plc ("San Leon")—exempted him from SDLT under Section 45. HMRC disagreed, leading to a series of appeals culminating in this significant judicial decision.

Summary of the Judgment

The Court of Appeal dismissed Mr. Fanning's appeal, upholding the decision of the Upper Tribunal (UT) that the grant of an option did not constitute a "transfer of rights" under Section 45(1)(b) of the Finance Act 2003. Consequently, Mr. Fanning remained liable for the full SDLT on the property transaction amounting to £5,200,000. The court emphasized that the option granted to San Leon did not grant an immediate entitlement to call for a conveyance, a key requirement for Section 45 relief.

The judgment clarified that while Section 45 aims to prevent double SDLT charges in certain transactional structures, it does not extend to options unless they confer an immediate and unconditional entitlement to a conveyance. The court's interpretation reinforces the necessity for transactions to meet specific criteria under Section 45 to qualify for SDLT relief.

Analysis

Precedents Cited

• Ramsay Ltd v Inland Revenue Comrs [1982] AC 300: Established principles against the artificial avoidance of tax through complex transactional arrangements.
• Spiro v Glencrown Properties Ltd [1991] Ch 537: Discussed whether an option creates an equitable interest sufficient to alter tax liabilities.
• Project Blue Ltd v HMRC [2018] UKSC 30: Addressed anti-avoidance measures within SDLT context.
• Fowler v HMRC [2020] UKSC 22: Provided guidance on interpreting statutory deeming provisions, emphasizing purpose and avoiding absurd results.
• West End Dwellings Co Ltd v Finsbury Borough Council [1952] AC 109: Highlighted that statutory fictions must account for inevitable consequences.

Legal Reasoning

The court employed a purposive approach to statutory interpretation, focusing on the objectives behind Section 45. It analyzed whether the grant of an option to San Leon provided San Leon with an immediate entitlement to call for a conveyance, as required by Section 45(1)(b). The judgment concluded that the option did not meet this threshold because:

• The option was not exercised at the time of the original transaction, meaning San Leon did not have a present entitlement to a conveyance.
• Section 45 modifies Section 44, which pertains to transactions intended to be completed by a conveyance. An option, being contingent, does not inherently trigger the same SDLT implications unless exercised.
• The consideration paid for the option (£100) did not constitute a "substantial amount" under Section 45(3), nor was the option itself an "other transaction" within the intended scope of Section 45.

The court rejected Mr. Fanning's reliance on precedents that suggested the option created sufficient equitable interest under Section 45, emphasizing the need for transactions to align with the specific statutory language and purpose.

Impact

This judgment sets a clear precedent on the interpretation of Section 45 of the Finance Act 2003 concerning SDLT. It delineates the boundaries within which options and similar transactional mechanisms may or may not qualify for SDLT relief. Future cases will reference this decision to assess whether their transactional structures meet the criteria for Section 45 relief, particularly focusing on whether an option confers an immediate entitlement to a conveyance.

Additionally, the ruling underscores the judiciary's commitment to preventing tax avoidance through the misuse of statutory provisions, ensuring SDLT is appropriately levied on actual land transactions rather than on attempts to circumvent tax liabilities through contingent agreements.

Complex Concepts Simplified

Stamp Duty Land Tax (SDLT)

SDLT is a tax levied on property purchases in the UK. It is calculated based on the purchase price of the property and must be paid by the buyer within 30 days of completing the transaction.

Section 45 of the Finance Act 2003

Section 45 provides relief from SDLT in specific scenarios to avoid double taxation when there are multiple transactions related to a single property purchase. It essentially seeks to ensure that only one SDLT charge applies to the total consideration of linked transactions.

Transfer of Rights

In the context of SDLT, a "transfer of rights" refers to any assignment, subsale, or other transaction where a new party becomes entitled to purchase the property. This could involve selling the purchase agreement to another party before the initial transaction is completed.

Deeming Provisions

Deeming provisions in tax law treat certain transactions as if they have taken a particular form for tax purposes, even if they do not in reality. This is used to prevent tax avoidance by ensuring that all relevant transactions are taxed appropriately.

Conclusion

The Fanning v Revenue & Customs judgment provides critical clarity on the application of Section 45 of the Finance Act 2003 concerning SDLT. By determining that the grant of an option without an immediate entitlement to a conveyance does not qualify as a "transfer of rights" under Section 45(1)(b), the court has set a definitive boundary for future interpretations and applications of SDLT relief provisions.

This decision reinforces the principle that statutory provisions must be interpreted in line with their intended purpose, preventing taxpayers from exploiting conditional or contingent arrangements to avoid tax liabilities. Practitioners and individuals engaging in property transactions should heed this ruling to ensure compliance with SDLT obligations and to structure their transactions appropriately to benefit from any available tax relief.