Hannover Leasing v HMRC - First Tier Tribunal reviews Stamp Duty Land Tax anti-avoidance legislation
25 June 2019
The recent decision of Hannover Leasing v HMRC is the most recent case to consider the application of Section 75A of the Finance Act 2003 and consider whether or not there has been "avoidance" of stamp duty land tax ("SDLT"). The tribunal ruled that the anti-avoidance legislation can apply whether or not there is avoidance in the conventional sense and whether or not the transaction was commercially motivated.
Section 75A is a widely drafted anti-avoidance provision which is intended to counter schemes which have the effect of reducing an SDLT liability. It applies where:
- One person disposes of a chargeable interest, and another person acquires, that interest, or a chargeable interest derived from it;
- A number of transactions (‘scheme transactions’), including the disposal and acquisition, are involved in connection with the disposal and acquisition; and
- The total SDLT payable in respect of all the scheme transactions is less than the amount that would be payable on a 'notional land transaction' effecting the acquisition.
When section 75A applies, the individual transactions in the scheme are disregarded and instead SDLT applies on the "notional land transaction".
The decision concerned the "de-enveloping" of property. The Company (Hannover) sought to acquire a commercial property and hold it in a partnership. The seller of the property was a limited partnership of which a unit trust was the sole limited partner. Hannover did not wish to acquire the partnership (for commercial reasons) so the seller sold the property out of the partnership to the unit trust and Hannover subsequently purchased the unit trust. Later Hannover contributed the property to a new partnership. Each property transaction would ordinarily be treated separately for SDLT purposes and as a result, very little SDLT was payable. However, the tribunal decided that these steps were scheme transactions and that section 75A could be used to counter arrangements which give an SDLT saving whether or not avoidance of SDLT was a motive. Interestingly, HMRC also argued that their published guidance to the contrary was not correct.
The potential impact of this case is significant. It has the ability to impact on transactions where there is another less tax efficient route to achieving the same outcome and if challenged, a tribunal may rule that Section 75A should apply and additional SDLT is due.
It is worth remembering that this is a lower tier tribunal decision and is likely to be appealed. That being said it is important to consider the application of Section 75A when undertaking complex restructuring or "de-enveloping" of property.