The recent case of Geering and others v HMRC concerned a marketed stamp duty land tax (SDLT) avoidance scheme that relied on the sub-sale rules (previously in section 45 Finance Act 2003) that have since been repealed. There were two separate but similar transactions dealt with together by the case.
The taxpayers (Mr and Mrs Geering and Ms Robinson, referred to as "T") established a new UK unlimited company. T then subscribed for shares equal to the value of the deposit to be paid to the seller. The company subsequently entered into a contract to purchase the property from the seller for the agreed purchase price and paid the deposit. After exchange of contracts, the company resolved to reduce its share capital by way of a distribution in specie of the property to T (the shareholders). The distribution was conditional upon and simultaneous with the completion of the contract between the seller and the unlimited company. Prior to completion, additional shares were subscribed for by T in the company, the result of which was that T held shares in the company equal to the price to be paid for the property. On completion the property was transferred to the company and immediately transferred on to T by way of the distribution in specie. Sub-sale relief was claimed under the old section 45 Finance Act 2003 to eliminate all SDLT on the transactions.
The FTT found that the scheme failed under section 45, since the share capital contribution paid was found to be consideration given indirectly by T and, as such, was "consideration" as defined by section 45(3)(b)(i). Given that this legislation has since been repealed, this is of historic interest only.
However, the FTT also found that HMRC's alternative argument would have succeeded. This centred on the wide-ranging anti-avoidance rule in section 75A Finance Act 2003. This part of the decision considered the leading case on section 75A (Project Blue Limited v Revenue and Customs Commissioners) and found that there is nothing in that case to suggest that the first seller of the chargeable interest in land (in this case the unconnected seller of the property) must be aware of any subsequent transactions. The FTT found that, because the documentation setting out the arrangements entered into clearly contemplated the transfer in specie of the property after, and dependent on, its sale to the company, the onward transfer from the company to T was "in connection with" the disposal by the seller, even though the seller knew nothing about it.
This is an interesting case in relation to section 75A, although as an FTT level case it has little value as a precedent and might have been influenced significantly by the fact that this was a promoted tax avoidance scheme.