Summary and implications  

HMRC have lost the first ever SDLT avoidance case in the First Tier Tribunal (FTT).  

  • The structure considered by the FTT was a common method of mitigating SDLT in 2006 and many other cases on similar facts are on hold awaiting its outcome.  
  • The victory for the taxpayer is a heavy blow for HMRC who were expected to win. It is likely that HMRC will challenge the decision in the Upper Tribunal.  
  • It is possible that this case could be distinguished on the facts. Therefore, even if HMRC were to lose again, it may not set a precedent for tax planning undertaken on similar but not identical facts.  

Facts of the case  

DV3 concerned the interaction of the SDLT partnership rules with sub-sale relief.  

  • In October 2006, the Buyer (B) entered into an agreement with the Seller (A) to acquire a Property.  
  • A month later, B set up an English limited partnership (C) in which it had a 98 per cent interest. B was connected with the other partners in C, such that B’s interest for SDLT purposes was deemed to be 100 per cent.  
  • C then entered into an agreement with B to acquire the Property.  
  • In December 2006, both agreements completed at the same time. Two separate conveyances (one from A to B, the other from B to C) were executed and consideration paid by B to A, and by C to B.  
  • B did not pay SDLT on the first contract on the basis that SDLT sub-sale relief applied.  
  • C also claimed no SDLT was payable on the transfer from B as a result of the SDLT partnership rules.  

Amendments to the SDLT legislation before the FTT decided this case means that this structure is no longer possible.

The decision

The FTT held that:

  • A tripartite contract was deemed to have been entered into between A, B and C;  
  • Although sub-sale relief disregarded the A to B conveyance for the purpose of calculating SDLT, it did not mean the conveyance was disregarded entirely; therefore  
  • B did acquire an interest which enabled it to then convey the Property to C and complete the tripartite contact;  
  • Accordingly, the taxpayer was correct in applying the SDLT partnership rules to the conveyance from B to C.  

The result of the above was that the SDLT liability of B and C was nil.  

Click here to view structure diagram of the facts of DV3.


The planning described above is no longer possible. The legislation was changed in December 2006 to tackle arrangements seeking to benefit from the combined SDLT effect of a series of transactions. A number of SDLT saving structures similar to those described here were used before the change and other HMRC challenges are expected. HMRC are likely to appeal the decision in DV3 and, should they win, they will most certainly issue assessments to recover the SDLT against all those cases currently on hold on similar facts.