A petard is a small explosive device of Elizabethan times which is inclined to hoise you (meaning lift you into the air) if mishandled, rendering you hoist by your own petard.
FA 2003 Sch 7 Part 1 affords relief from SDLT for certain transactions between group companies (‘group relief’). But it’s not available if the transaction in question:
is not effected for bona fide commercial reasons; or
forms part of arrangements of which the main purpose, or one of the main purposes, is the avoidance of a liability to tax.
It doesn’t have to be SDLT that you’re avoiding: aiming to avoid stamp duty, income tax, capital gains tax or corporation tax will also cook your goose.
The Tower One St George Wharf Ltd v HMRC [2022] UKFTT 154 (TC) (reported in Tax Journal, 10 June 2022) involved group relief and a figurative petard.
A group of companies wanted to transfer a property in the course of development to a special purpose vehicle (SPV) within the same group. Everyone accepted that there were bona fide commercial reasons for doing so. If the property had simply been transferred in a straightforward way directly from the company owning it to the SPV, there is no suggestion that group relief from SDLT would not have been available.
However, the group’s tax advisers came up with what seemed like a good idea at the time. They devised a complex indirect method of transfer which, they advised, would give the SPV a tax-free uplift in the base cost of the property from £30m to £200m, potentially saving some tens of millions of pounds in corporation tax (though in the event, when HMRC subsequently challenged the analysis, it had been conceded that there was no such uplift).
In holding that group relief was not available, the FTT made some important points which are better quoted than paraphrased. None are novel or controversial, but all are worthy of note:
Denial of group relief is not confined to circumstances where the specific transaction on which SDLT would be chargeable itself has the effect of avoiding liability to tax. If that specific transaction is part of a broader scheme, agreement or understanding, it is enough that other transactions within the scheme, agreement or understanding have the effect of avoiding tax, if a main purpose of the scheme, agreement or understanding as a whole is the avoidance of tax.
‘Purpose’ means the intended effect of the arrangements.
There is a distinction between the purpose of arrangements, and the question of whether the arrangements are effective in achieving that purpose. The fact that arrangements ultimately fail to achieve their purpose (for instance, because they ultimately fail to satisfy the necessary legal criteria to produce the intended legal effect) will not retrospectively negate the fact that they had that purpose.
Where there are two ways for a taxpayer to carry out a bona fide commercial transaction, one of which involves tax avoidance and one of which does not, and where the taxpayer chooses the way that involves tax avoidance, then tax avoidance will be at least one of the purposes of adopting that course.
The FTT considered that the roundabout method by which the property had been transferred had the purpose of avoiding corporation tax and that this was not only a purpose but, as a matter of fact, one of the main purposes of the arrangements.
Group relief was not therefore available and SDLT was due on the £200m value of the property transferred.
Home >Articles > Towers and petards: SDLT and avoidance
Towers and petards: SDLT and avoidance
A petard is a small explosive device of Elizabethan times which is inclined to hoise you (meaning lift you into the air) if mishandled, rendering you hoist by your own petard.
FA 2003 Sch 7 Part 1 affords relief from SDLT for certain transactions between group companies (‘group relief’). But it’s not available if the transaction in question:
is not effected for bona fide commercial reasons; or
forms part of arrangements of which the main purpose, or one of the main purposes, is the avoidance of a liability to tax.
It doesn’t have to be SDLT that you’re avoiding: aiming to avoid stamp duty, income tax, capital gains tax or corporation tax will also cook your goose.
The Tower One St George Wharf Ltd v HMRC [2022] UKFTT 154 (TC) (reported in Tax Journal, 10 June 2022) involved group relief and a figurative petard.
A group of companies wanted to transfer a property in the course of development to a special purpose vehicle (SPV) within the same group. Everyone accepted that there were bona fide commercial reasons for doing so. If the property had simply been transferred in a straightforward way directly from the company owning it to the SPV, there is no suggestion that group relief from SDLT would not have been available.
However, the group’s tax advisers came up with what seemed like a good idea at the time. They devised a complex indirect method of transfer which, they advised, would give the SPV a tax-free uplift in the base cost of the property from £30m to £200m, potentially saving some tens of millions of pounds in corporation tax (though in the event, when HMRC subsequently challenged the analysis, it had been conceded that there was no such uplift).
In holding that group relief was not available, the FTT made some important points which are better quoted than paraphrased. None are novel or controversial, but all are worthy of note:
Denial of group relief is not confined to circumstances where the specific transaction on which SDLT would be chargeable itself has the effect of avoiding liability to tax. If that specific transaction is part of a broader scheme, agreement or understanding, it is enough that other transactions within the scheme, agreement or understanding have the effect of avoiding tax, if a main purpose of the scheme, agreement or understanding as a whole is the avoidance of tax.
‘Purpose’ means the intended effect of the arrangements.
There is a distinction between the purpose of arrangements, and the question of whether the arrangements are effective in achieving that purpose. The fact that arrangements ultimately fail to achieve their purpose (for instance, because they ultimately fail to satisfy the necessary legal criteria to produce the intended legal effect) will not retrospectively negate the fact that they had that purpose.
Where there are two ways for a taxpayer to carry out a bona fide commercial transaction, one of which involves tax avoidance and one of which does not, and where the taxpayer chooses the way that involves tax avoidance, then tax avoidance will be at least one of the purposes of adopting that course.
The FTT considered that the roundabout method by which the property had been transferred had the purpose of avoiding corporation tax and that this was not only a purpose but, as a matter of fact, one of the main purposes of the arrangements.
Group relief was not therefore available and SDLT was due on the £200m value of the property transferred.
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