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UT Rejects Appeal In SDLT Group Relief Case

Wednesday 15th January 2025

The Upper Tier Tribunal has recently rejected the taxpayer’s appeal in a case involving SDLT group relief and agreed with the FTT that the relief was not available because the transfer formed part of arrangements of which one of the main purposes was the avoidance of a liability to corporation tax.

In The Tower One St George Wharf Ltd v HMRC [ 2024 UKUT 373 TCC], the appellant was a member of a property group. The group had commercial reasons for transferring a property [St George’s Wharf/the ‘Tower’] acquired originally by St George (South London) Ltd (SGSL), to a special purpose vehicle [the Appellant].  These included the ring-fencing of risks and potential liabilities associated with a planned development. This would also provide greater financial flexibility by allowing the prospect of securitised borrowing from a wider group of lenders.

The group’s tax advisers proposed that if the Tower was transferred to the Appellant via a particular series of steps, a significant corporation tax advantage could be achieved. Following this advice, the Tower was transferred to the Appellant by the series of steps which were all executed on the same day. These steps included:

  • the grant by SGSL [the legal owner of the Tower] of a 999-year lease to another group company (“B64”) at book value (£30m), which was significantly less than market value (£200m),
  • a transfer of the ownership of B64 itself from another group company to the Appellant, followed by
  • a transfer of the lease from B64 to the Appellant at book value.

The Appellant recognised the expected corporation tax benefit in its company tax return. However, following an HMRC enquiry into that return, the Appellant accepted that in fact no such benefit was available. The result was that the corporation tax position of the Appellant was ultimately no more advantageous, and possibly less advantageous, than if the Tower had been transferred directly from SGSL to the intended SPV.

The land transaction return filed by the Appellant in respect of its acquisition of the lease from B64 included a claim for SDLT group relief, as did the land transaction return filed by B64 in respect of the initial grant of the lease by SGSL to B64.

Following a review, HMRC decided that SDLT group relief was not available to the Appellant, and issued an assessment to SDLT based on the market value of the lease at the time of its acquisition by the Appellant.  On appeal, the FTT held that:

(1) The grant of the lease by SGSL to B64 followed by the transfer of the lease by B64 to the Appellant was not a sub-sale to which s 45 FA 2003 applied. The transaction on which SDLT was chargeable was the transfer of the lease from B64 to the Appellant.

(2), the Appellant was not entitled to group relief, as the transaction for the acquisition of the lease formed part of arrangements of which one of the main purposes was the avoidance of liability to tax, by virtue of para2(4A) Sch7 FA2003, and

(3) by virtue of s.53(1) and (1A) FA 2003, SDLT fell to be assessed on the market value of the lease and not the book value. The exception to the deemed market value rule in s 54(4) FA 2003 (Case 3) did not apply: B64 had made a group relief claim in respect of the grant of the lease to it by SGSL earlier the same day, and this was a transaction “within the period of three years immediately preceding the effective date of the transaction”.

(4) s.75A FA 2003 (“Anti-avoidance”) did not apply because the SDLT payable by the Appellant is not less than the amount that would have been payable on a notional land transaction effecting the acquisition of the Tower by the Appellant on its disposal by SGSL

The UT held that the FTT had not erred in law and Tower One’s appeal was dismissed.

If you would like more information on this decision, please contact Keith Rushen on 0207 486 2378.

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