Project Blue Ltd v Revenue and Customs

Factual and Procedural Background

Company A contracted on 5 April 2007 to purchase the former Chelsea Barracks site in The City from a Government Department for £959 million, paying a 20% deposit with the balance deferred until 31 January 2008. Company B, a sovereign-wealth real-estate vehicle, was the principal shareholder in Company A and provided the deposit. In order to finance completion, Company A entered into Shari’a-compliant Ijara funding with Bank A, a Qatari financial institution.

The closing steps were:

1. Company A agreed to sub-sell the freehold to Bank A (29 January 2008).
2. Bank A simultaneously agreed to lease the property back to Company A.
3. On 31 January 2008:
   • The Government Department conveyed the freehold to Company A.
   • Company A conveyed the freehold to Bank A.
   • Bank A leased the property to Company A and both parties exchanged put and call options.

Land-transaction returns filed on 22 February 2008 claimed:

• Sub-sale relief under section 45 Finance Act 2003 (FA 2003) for the Government Department → Company A conveyance;
• Alternative-property-finance relief under section 71A for the Company A → Bank A conveyance and the lease back.

A Government Agency opened an enquiry and on 13 July 2011 issued a closure notice amending Company A’s return to impose £38.36 million SDLT, later increasing its claim to £50 million. The First-tier Tribunal upheld most of the Agency’s position; the Upper Tribunal agreed on key issues. The Court of Appeal reversed, holding that Bank A, not Company A, should have been assessed and that the six-year limit had expired. The Government Agency appealed to the Supreme Court.

Legal Issues Presented

1. Whether the interaction between section 45 (sub-sale relief) and section 71A (Ijara exemption) of the FA 2003 exempted the Company A → Bank A conveyance from Stamp Duty Land Tax (SDLT).
2. Whether the anti-avoidance provision in section 75A FA 2003 applied to re-characterise the multi-step arrangement and, if so, how to compute chargeable consideration.
3. Whether section 75B could reduce the notional consideration by treating parts of the financing as “incidental”.
4. Whether the assessment breached Article 14 of the European Convention on Human Rights when read with Article 9 and A1P1 because of alleged indirect religious discrimination.
5. Whether the Government Agency had power to amend the particular land-transaction return it chose (“wrong-return” challenge).

Arguments of the Parties

Appellant — Government Agency

• Vendor under section 71A(2) should be Company A, so the Ijara exemption applies; sub-sale relief and section 71A together leave no charge unless section 75A is engaged.
• Section 75A applies without any motive test; Company A is “P” and owes SDLT on the largest consideration (£1.25 billion).
• Section 75B does not permit apportionment because the sub-sale is expressly excluded from “incidental” status.
• No discrimination arises; any harsh effects are objectively justified and remediable under section 80 FA 2003.
• The enquiry and closure notice were within statutory powers despite being issued against the return relating to the Government Department → Company A conveyance.

Respondent — Company A

• Vendor in section 71A(2) must be the Government Department, so Bank A—not Company A—should have been assessed, and the limitation period has expired.
• Section 75A requires an avoidance purpose and is dis-applied by section 75A(7) because tax loss arose solely from section 71A.
• Even if section 75A applies, section 75B allows exclusion of financing amounts above the £959 million purchase price.
• Charging SDLT on the full £1.25 billion indirectly discriminates against Islamic-compliant finance, contrary to Article 14 ECHR.
• The Agency amended the wrong return; any assessment should have been by determination or discovery, now time-barred.

Table of Precedents Cited

Court’s Reasoning and Analysis

1 – Interaction of sections 45 and 71A: The majority (Judges Hodge, Hale, Hughes and Lloyd-Jones) held that section 71A is a self-contained exemption drafted in “real-world” terminology. When applied to a sub-sale, the vendor in section 71A(2) is the party who actually conveys the property to the bank, i.e. Company A. Consequently the Company A → Bank A conveyance is exempt and the Government Department → Company A conveyance is disregarded under the tailpiece to section 45(3).

2 – Application of section 75A: Because both overt transactions were either disregarded or exempt, the anti-avoidance rule was triggered. The Government Department was “V” and Company A was “P”. The scheme transactions were the entire Ijara chain; the sum of SDLT otherwise payable was nil, but on the notional sale from the Government Department to Company A the chargeable consideration, per section 75A(5), was the £1.25 billion agreed between Company A and Bank A. SDLT at 4% therefore equalled £50 million.

3 – Section 75B: The Court rejected the Upper Tribunal’s apportionment approach. The sub-sale to Bank A and the lease back were expressly listed in section 75A(3) and, by section 75B(2)(c), could never be “incidental”. The entire £1.25 billion remained in the section 75A(5) computation. Any over-payment could be reclaimed by Company A under section 80 when the final tranche of consideration was not in fact paid.

4 – Human-Rights Challenge: Even assuming the SDLT rules affected rights protected by Articles 9, 14 and A1P1, any differential impact on Islamic finance was objectively justified by the need for broad anti-avoidance measures and the availability of refunds under section 80. Company A was therefore not a “victim” of unlawful discrimination.

5 – Procedural Points: The Agency had power under Schedule 10 to amend the return linked to the Government Department → Company A contract because the enquiry under paragraph 12 “extends to anything…that relates to the amount of tax chargeable”. Case-management decisions allowing the Agency to raise a higher figure and refusing Company A’s amendments disclosed no error of law.

6 – Dissent: Judge Briggs would have treated the Government Department as vendor under section 71A(2), making Bank A the taxpayer for SDLT on its £1.25 billion purchase; since the limitation period for assessing Bank A had expired, no SDLT would be recoverable.

Holding and Implications

APPEAL ALLOWED. The Court reinstated the £50 million SDLT assessment against Company A, subject to its statutory right to reclaim any over-payment if parts of the contingent consideration remain unpaid.

Practically, the judgment:

• Clarifies that in a contemporaneous sub-sale funded by Ijara finance, the vendor for section 71A(2) purposes is the intermediate seller, not the original landowner.
• Confirms that section 75A can apply absent any motive test, and that its “largest amount” rule is not reduced by section 75B where the sub-sale and lease are core scheme steps.
• Re-affirms Parliament’s intent to tax purchasers rather than financiers, while closing perceived lacunae that had enabled SDLT-free outcomes.
• Signals that contingent-consideration mechanisms under section 80 provide the proper avenue for post-completion adjustments.