On 18 December 2014, the Upper Tribunal dismissed the taxpayer’s appeal in the Project Blue1 case, the first case to consider in any detail the wide-ranging stamp duty land tax (SDLT) anti- avoidance provision (section 75A of Finance Act 2003).
Click here for our blog on the First-tier Tribunal decision.
The facts of the case, in broad summary, are that in 2007 a Special Purpose Vehicle (SPV) agreed to buy the Chelsea Barracks from the Ministry of Defence (MoD) at a price of £959m. It was agreed that 20% would be paid on exchange with the balance in equal instalments over four years. To fund the remainder of the purchase price, the SPV used a sharia-compliant finance arrangement. This was arranged between exchange and completion. The SPV acquired the freehold of the property from the MoD in January 2008 and, pursuant to an agreement negotiated prior to completion of the purchase of the property, immediately transferred the freehold to a Qatari financial institution specialising in sharia-compliant finance. The bank then immediately granted a lease of the property back to the SPV.
The SPV claimed that no SDLT charge arose, relying on the following arguments:
- SDLT “sub-sale”, or “transfer of rights”, relief applied as the SPV was not the “ultimate” purchaser of the property
- SDLT “alternative property finance” relief applied in respect of the sharia-compliant financing
- the targeted SDLT anti-avoidance rule (section 75A) was not triggered as all steps were commercial transactions carried out for genuine commercial purposes.
HMRC disagreed, arguing that section 75A did apply, and that as a result SDLT of £50m was due as the total amount payable under the steps was in fact £1.25bn. This, of course, exceeded the £38m SDLT that would have been due had the SPV simply purchased the property for £959m.
The Tribunal agreed with HMRC (and the First-tier Tribunal) that the SDLT avoidance legislation applies regardless of any avoidance motive. In other words, the legislation can apply even to “innocent” cases. The Tribunal did, however, reverse the earlier decision as to the correct chargeable consideration for the “notional transaction” under section 75A. It held that SDLT was payable on the £959m paid by the SPV.