On 16 October 2015, the First-tier Tribunal13 held that the exemption from the SDRT principal charge available on surrender of units under a unit trust scheme was not capable of applying to the extent that the unit holder received trust property in return.
The legislation applicable at the relevant time (paragraph 7 of Schedule 19 to Finance Act 199914, “paragraph 7”) provided that no SDRT charge arises if on the surrender of units the holder receives “only such part of each description of asset in the trust property as is proportionate to, or as nearly as practicable proportionate to, the unit holder’s share”.
It was accepted by the unit holder that it did not receive trust property proportionate to (or even as nearly as practicably proportionate to) its share in the fund. However the unit holder sought repayment of the bulk of the SDRT charge on the grounds that paragraph 7 should be read so as to apply “to the extent” that there was no change in its beneficial ownership of the trust property.
The Tribunal agreed with HMRC that the paragraph 7 exemption was an all or nothing test. It is particularly interesting to note that the Tribunal was not persuaded by the argument that the Court of Appeal decision in Pollen15 was authority that the Tribunal could apply a purposive construction of paragraph 7 that would support the appellant’s argument in this case. In the Pollen decision (which concerned SDLT charity relief) the Court of Appeal, while agreeing that “to the extent” wording could in that case justifiably be read into the applicable SDLT provision, recognised that a court’s powers here are limited to correcting “obvious drafting errors” and that “considerable caution” must be exercised before adding, omitting or substituting words into statute. In light of this the Tribunal in Henderson held that sufficient policy imperative was lacking to read in the words advocated by the unit holder. As the Tribunal was not “abundantly sure” that the parliamentary draftsman intended paragraph 7 to apply in anything other than an “all or nothing” manner, the appeal was dismissed.
The decision can be found here.