THE TOWER ONE ST GEORGE WHARF LIMITED v Revenue & Customs (tamp Duty Land Tax (SDLT) - Sub-sales)

Factual and Procedural Background

The Appellant, a company within a corporate group principally engaged in residential property development, appealed a discovery assessment to stamp duty land tax ("SDLT") dated 21 May 2015, upheld on review on 20 April 2016. The dispute arose from the Appellant's acquisition of a 999-year lease of a residential property development known as the "Tower" from another group company.

The group originally owned the Tower through a series of related companies. The Tower was transferred to the Appellant, a special purpose vehicle ("SPV"), via a complex series of transactions executed on the same day. These steps included the grant of the lease by the legal owner company ("Company A") to another group company ("Company B") at book value, a transfer of ownership of Company B to the Appellant, and a subsequent transfer of the lease from Company B to the Appellant at book value.

The transfers were motivated by bona fide commercial reasons, including risk ring-fencing and financial flexibility, and were accompanied by tax advice anticipating a significant corporation tax advantage due to a step-up in the carrying value of the Tower for corporation tax purposes. However, following an HM Revenue and Customs ("HMRC") enquiry, the Appellant accepted that no corporation tax benefit was actually available.

Both Company B and the Appellant claimed SDLT group relief on their respective transactions. HMRC rejected the Appellant's group relief claim and issued an SDLT assessment based on the market value of the lease rather than its book value. The Appellant appealed this assessment to the First-tier Tribunal.

The Tribunal hearing took place over three days in March 2022, with evidence including testimony from the Appellant's director.

Legal Issues Presented

1. Whether the transfer of the lease from Company B to the Appellant qualified as a sub-sale under section 45 of the Finance Act 2003 ("FA 2003").
2. Whether the Appellant was entitled to SDLT group relief under Schedule 7 FA 2003, specifically whether paragraph 2(4A) Schedule 7 applied to deny relief due to arrangements having the avoidance of liability to tax as one of their main purposes.
3. Whether the deemed market value rule under section 53 FA 2003 applied to the transaction, and if any exceptions, including Case 3 under section 54(4) FA 2003, were applicable.
4. Whether the anti-avoidance provision in section 75A FA 2003 applied to the transaction.

Arguments of the Parties

Appellant's Arguments

• The Appellant contended that it was entitled to group relief, and the SDLT assessment should be set aside entirely.
• Alternatively, the Appellant argued that if group relief was not available, the SDLT should be calculated on the actual consideration paid (the book value of approximately £30 million) rather than the market value (£200 million).

Respondents' Arguments

• HMRC argued that by virtue of section 45 FA 2003, the land transaction should be treated as taking place directly between Company A and the Appellant, and group relief was not available under paragraph 2(4A) Schedule 7 FA 2003.
• HMRC maintained that the deemed market value rule in section 53 FA 2003 applied to the transaction.
• Alternatively, if the transaction was treated as between Company B and the Appellant, group relief was still not available, and the deemed market value rule applied with the exception in section 54(4) FA 2003 being applicable.
• HMRC further submitted that the anti-avoidance provisions in sections 75A and 75C FA 2003 applied, confirming that the chargeable consideration was the market value and that group relief was not available.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Vardy Properties v Revenue & Customs [2012] UKFTT 564 (TC)	Interpretation of "entitled" in section 45 FA 2003 requiring a legal right to call for a conveyance.	The Tribunal accepted that "entitled" connotes a legal right or title, supporting the conclusion that no sub-sale occurred as no legal right existed prior to the transfer.
Inland Revenue Commissioners v Willoughby [1997] 1 WLR 1071	Definition and understanding of tax avoidance in the context of tax legislation.	The Tribunal applied principles distinguishing legitimate tax planning from arrangements designed to defeat Parliament's intention, concluding the arrangements had avoidance as a main purpose.
Commissioners of Inland Revenue v Brebner (1967) 43 TC 705	Taxpayer's choice of transaction method and its relation to tax avoidance purpose.	The Tribunal noted that choosing a transaction method involving tax avoidance can constitute a main purpose of avoidance even if the transaction is genuine and commercial.
Newton v Commissioner of Taxation [1958] AC 450	Determining purpose from the terms of arrangements rather than subjective motive.	The Tribunal held that the purpose of arrangements can be ascertained objectively from the scheme, supporting the finding of avoidance purpose.
Seven Individuals v Revenue and Customs Commissioners [2017] UKUT 132 (TCC)	Consideration of purpose of arrangements devised by third parties and complex schemes.	The Tribunal considered wider contextual factors including the intentions of those who devised the arrangements, reinforcing the avoidance purpose finding.

Court's Reasoning and Analysis

The Tribunal first determined that section 45 FA 2003, which addresses sub-sales, did not apply because the transfer of the lease from Company B to the Appellant occurred only after the initial transaction between Company A and Company B had been completed. No legal right existed prior to the transfer for the Appellant to call for conveyance, and prior administrative agreements did not constitute a sub-sale under the statute.

Regarding group relief under Schedule 7 FA 2003, the Tribunal found that although the transfer was motivated by bona fide commercial reasons, it formed part of arrangements with the main purpose, or one of the main purposes, of avoiding liability to tax. The arrangements were a coordinated scheme devised by professional advisers, aiming to obtain a corporation tax advantage by stepping up the carrying value of the Tower. This purpose amounted to avoidance of liability to tax within the meaning of paragraph 2(4A) Schedule 7 FA 2003, and thus group relief was disallowed.

The Tribunal applied the deemed market value rule in section 53 FA 2003, concluding that the SDLT chargeable consideration must be the market value of the lease rather than its book value. The exception in Case 3 under section 54(4) FA 2003 did not apply because Company B had made a group relief claim in respect of the earlier transaction on the same day, regardless of whether that claim was valid or entitled.

Finally, the anti-avoidance provision in section 75A FA 2003 did not apply because the SDLT payable on the actual transaction was not less than that which would have been payable on a hypothetical direct acquisition by the Appellant from Company A.

Holding and Implications

The Tribunal DISMISSED the Appellant's appeal against the SDLT discovery assessment.

The direct effect of this decision is that the Appellant must pay SDLT based on the market value of the lease, without entitlement to group relief. The Tribunal clarified that the complex series of transactions, although motivated by commercial reasons, included arrangements with the main purpose of tax avoidance, thus precluding group relief. The decision does not establish new precedent but applies existing legal principles regarding sub-sales, group relief denial due to tax avoidance purpose, and the deemed market value rule.