HM Revenue and Customs v DV3 RS Ltd Partnership

Factual and Procedural Background

The Company contracted on 24 October 2006 to purchase the head leasehold interest of a building from Company B for £65.1 million, with completion set for 4 December 2006. Subsequently, a partnership ("the Partnership") was formed, in which the Company held a 98% income interest, and other partners were connected with the Company for tax purposes, with one partner not being a corporate body. The following day, the Company contracted to sell the same leasehold interest to the Partnership for the same price and with the same completion date. On 5 December 2006, Company B transferred the interest to the Company, which then transferred it to the Partnership.

It was common ground that without the Partnership, or if Company B had transferred directly to the Partnership, stamp duty land tax ("SDLT") of £2.6 million would have been payable. The dispute concerned whether the intermediate transfer via the Company avoided SDLT liability.

The Upper Tribunal (Henderson J) initially ruled in favour of the Company, accepting their scheme to avoid SDLT, despite acknowledging the opposing tax authority's ("HMRC") arguments produced a sensible result. HMRC appealed with permission, and this court was tasked with determining whether the Upper Tribunal's decision was correct.

Legal Issues Presented

1. Whether the intermediate transfer by the Company to the Partnership constitutes a chargeable land transaction for the purposes of SDLT.
2. How the deeming provisions in sections 44 and 45 of the Finance Act 2003 apply to transactions involving partnerships under Schedule 15.
3. Whether the special provisions in Schedule 15 override or modify the general SDLT provisions in sections 44 and 45.
4. Whether the Partnership is entitled to rely on the exemption under Schedule 15 paragraph 10, given the nature of the partners and the structure of the transaction.

Arguments of the Parties

Appellant's Arguments (HMRC)

• The intermediate transfer by the Company to the Partnership should be disregarded for SDLT purposes under section 45(3), meaning the Company never acquired a chargeable interest.
• The Partnership acquired the chargeable interest directly from Company B, making it liable for SDLT on the full consideration.
• The exemption under Schedule 15 paragraph 10 does not apply because the Company did not hold a chargeable interest to transfer.
• The deeming provisions in sections 44 and 45 should be applied consistently with the overall purpose of SDLT, which taxes land transactions rather than documents.

Appellee's Arguments (Company)

• The special provisions in Schedule 15, which deal with partnerships, should override the general provisions in sections 44 and 45.
• The intermediate transfer from the Company to the Partnership is a genuine land transaction but exempt from SDLT due to the partnership rules.
• The Company acquired a chargeable interest from Company B, and subsequently transferred it to the Partnership, triggering no tax liability due to the exemption.
• The statutory scheme should be interpreted to allow the avoidance of SDLT in this manner, as the provisions "otherwise expressly provide" for the chargeable consideration.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by emphasizing the centrality of section 44 in defining what constitutes a land transaction for SDLT purposes, noting that sections 44 to 47 form a cohesive code. Section 44 provides the framework for determining when a contract and its completion amount to a land transaction, focusing on acquisition of a chargeable interest. Section 45 modifies section 44 to address sub-sales and related arrangements.

The court rejected the Company's argument that Schedule 15's special provisions override the general SDLT provisions. Instead, Schedule 15 must be read in context with the entire SDLT legislation, not as a standalone exemption.

Applying section 44(2), the Company was not regarded as entering into a land transaction upon contract with Company B, as no chargeable interest was acquired then. Completion of that contract would normally confer a chargeable interest, but section 45(3) instructs disregarding completion of the original contract when simultaneous with the secondary contract's completion.

Therefore, the Company never acquired a chargeable interest for SDLT purposes, despite holding an equitable interest in the real world. The partnership's acquisition from the Company is the effective land transaction, and the Partnership is liable for SDLT on the full consideration.

The court distinguished between the concepts of "vendor" and "transferor," noting that the Company was a transferor but not a vendor (a person disposing of a chargeable interest). The exemption under Schedule 15 paragraph 10 applies only if a partner transfers a chargeable interest, which did not occur here.

This analysis aligns with the purpose of SDLT to tax land transactions rather than documents and avoids reverting to a document-based tax. The court found HMRC's interpretation logical, consistent with statutory purpose, and producing a sensible result.

Holding and Implications

The appeal is allowed.

The court held that the intermediate transfer by the Company to the Partnership does not constitute a land transaction for SDLT purposes because the Company never acquired a chargeable interest. Consequently, the Partnership's acquisition is the relevant chargeable transaction, making it liable for SDLT on the full consideration.

This decision rejects the Company's scheme to avoid SDLT through the intermediate transfer and clarifies the application of sections 44 and 45 alongside Schedule 15 in partnership-related land transactions. The ruling confirms that special partnership provisions do not override the general SDLT framework and reinforces the purposive approach to statutory interpretation in tax law.

No new precedent beyond the direct effect on the parties was established.