In Project Blue v HMRC [2016] EWCA Civ 485 (26 May 2016), the Court of Appeal found that FA 2003 s 71A did not apply to a land transaction, so that s 75A was not in point.
The issue was the SDLT payable on the purchase of the Chelsea Barracks from the Minister of Defence (MoD) by Project Blue (PBL), using an Ijara lease, which is a form of Sharia compliant financing (as opposed to an interest-bearing loan). The sale comprised the following steps:
· MoD contracted to sell the land to PBL for £959m;
· PBL contracted to sell the land to a Qatari bank (MAR). Under leaseback arrangements, PBL was to pay MAR rent (representing installments of the purchase price); and
· PBL and MAR granted each other put and call options over the land.
The UT had found that PBL was liable to SDLT in the sum of £38m based on a consideration of £959m under s 75A. PBL contended that the party liable was MAR.
Under FA 2003 s 45 (before its 2008 amendments), PBL was not liable to SDLT, as the completion of the contract between the MoD and PBL was ‘disregarded’ under ‘sub-sale relief’. Furthermore, under FA 2003 s 71A, no SDLT was payable on the transfer from the MoD to MAR under the second contract. This was because s 71A ensured that no SDLT was triggered by an Ijara lease transaction. Consequently, both the transfer to MAR and the leaseback by MAR were exempt alternative finance transactions. Finally, s 75A applied to a series of transactions between a vendor ‘V’ and a purchaser ‘P’, where the total SDLT payable was less than would have been payable on a direct sale by V to P.
The court observed that the purpose of s 71A was to limit SDLT to a single charge on the acquisition of the property from the third party vendor, whether by the financial institution or its customer. It would therefore be ‘strange’ for Parliament to have intended that both the acquisition of the property by the customer and its later acquisition by the financial institution should be SDLT free under sub-sale relief. The court therefore thought that the ‘much more obvious construction of s 71A’ was that cases falling within s 45(3) were intended to be treated as direct acquisitions by the financial institution from the third party vendor, which triggered SDLT so that MAR was liable.
As to s 75A, the court stressed that there was no reference in the provision to the purpose of the transaction being tax avoidance. Under s 75A, MAR was ‘P’ and must be treated as such. However, this was only relevant if the court was wrong in relation to s 71A.
Why it matters: The Court of Appeal reversed the UT’s decision, finding that s 75A did not apply because s 71A did not apply, so that the notional transaction and the actual transaction were identical for s 75A purposes. Interestingly, the s 71A argument was not run by PBL in the FTT and was given relatively short shrift by the UT.
In Project Blue v HMRC [2016] EWCA Civ 485 (26 May 2016), the Court of Appeal found that FA 2003 s 71A did not apply to a land transaction, so that s 75A was not in point.
The issue was the SDLT payable on the purchase of the Chelsea Barracks from the Minister of Defence (MoD) by Project Blue (PBL), using an Ijara lease, which is a form of Sharia compliant financing (as opposed to an interest-bearing loan). The sale comprised the following steps:
· MoD contracted to sell the land to PBL for £959m;
· PBL contracted to sell the land to a Qatari bank (MAR). Under leaseback arrangements, PBL was to pay MAR rent (representing installments of the purchase price); and
· PBL and MAR granted each other put and call options over the land.
The UT had found that PBL was liable to SDLT in the sum of £38m based on a consideration of £959m under s 75A. PBL contended that the party liable was MAR.
Under FA 2003 s 45 (before its 2008 amendments), PBL was not liable to SDLT, as the completion of the contract between the MoD and PBL was ‘disregarded’ under ‘sub-sale relief’. Furthermore, under FA 2003 s 71A, no SDLT was payable on the transfer from the MoD to MAR under the second contract. This was because s 71A ensured that no SDLT was triggered by an Ijara lease transaction. Consequently, both the transfer to MAR and the leaseback by MAR were exempt alternative finance transactions. Finally, s 75A applied to a series of transactions between a vendor ‘V’ and a purchaser ‘P’, where the total SDLT payable was less than would have been payable on a direct sale by V to P.
The court observed that the purpose of s 71A was to limit SDLT to a single charge on the acquisition of the property from the third party vendor, whether by the financial institution or its customer. It would therefore be ‘strange’ for Parliament to have intended that both the acquisition of the property by the customer and its later acquisition by the financial institution should be SDLT free under sub-sale relief. The court therefore thought that the ‘much more obvious construction of s 71A’ was that cases falling within s 45(3) were intended to be treated as direct acquisitions by the financial institution from the third party vendor, which triggered SDLT so that MAR was liable.
As to s 75A, the court stressed that there was no reference in the provision to the purpose of the transaction being tax avoidance. Under s 75A, MAR was ‘P’ and must be treated as such. However, this was only relevant if the court was wrong in relation to s 71A.
Why it matters: The Court of Appeal reversed the UT’s decision, finding that s 75A did not apply because s 71A did not apply, so that the notional transaction and the actual transaction were identical for s 75A purposes. Interestingly, the s 71A argument was not run by PBL in the FTT and was given relatively short shrift by the UT.
