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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Fanning v Revenue & Customs [2023] EWCA Civ 263 (13 March 2023) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2023/263.html Cite as: [2023] WLR 2853, [2023] 1 WLR 2853, [2023] BTC 7, [2023] STI 574, [2023] WLR(D) 126, [2023] EWCA Civ 263, [2023] STC 660 |
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ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
MR JUSTICE MILES AND JUDGE JONATHAN RICHARDS
[2022] UKUT 21 (TCC)
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE LEWIS
and
LADY JUSTICE FALK
____________________
OISIN FANNING |
Appellant |
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- and - |
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THE COMMISSIONERS FOR HIS MAJESTY'S REVENUE & CUSTOMS |
Respondents |
____________________
Julian Hickey and Rebecca Sheldon (instructed by Levy and Levy Solicitors) for the Appellant
Elizabeth Wilson KC and Admas Habteslasie (instructed by the Solicitor and General Counsel to the Commissioners for HMRC) for the Respondents
Hearing date: 1 March 2023
____________________
Crown Copyright ©
Lady Justice Falk:
Introduction and factual background
The relevant legislation
"44 Contract and conveyance
(1) This section applies where a contract for a land transaction is entered into under which the transaction is to be completed by a conveyance.
(2) A person is not regarded as entering into a land transaction by reason of entering into the contract, but the following provisions have effect.
(3) If the transaction is completed without previously having been substantially performed, the contract and the transaction effected on completion are treated as parts of a single land transaction. In this case the effective date of the transaction is the date of completion.
(4) If the contract is substantially performed without having been completed, the contract is treated as if it were itself the transaction provided for in the contract. In this case the effective date of the transaction is when the contract is substantially performed.
(5) A contract is "substantially performed" when—
(a) the purchaser , or a person connected with the purchaser, takes possession of the whole, or substantially the whole, of the subject-matter of the contract, or
(b) a substantial amount of the consideration is paid or provided.
(6) For the purposes of subsection (5)(a)—
(a) possession includes receipt of rents and profits or the right to receive them, and
(b) it is immaterial whether possession is taken under the contract or under a licence or lease of a temporary character.
(7) For the purposes of subsection (5)(b) a substantial amount of the consideration is paid or provided—
(a) if none of the consideration is rent, where the whole or substantially the whole of the consideration is paid or provided;
(b) if the only consideration is rent, when the first payment of rent is made;
(c) if the consideration includes both rent and other consideration, when—
(i) the whole or substantially the whole of the consideration other than rent is paid or provided, or
(ii) the first payment of rent is made.
(8) Where subsection (4) applies and the contract is subsequently completed by a conveyance—
(a) both the contract and the transaction effected on completion are notifiable transactions, and
(b) tax is chargeable on the latter transaction to the extent (if any) that the amount of tax chargeable on it is greater than the amount of tax chargeable on the contract.
(9) Where subsection (4) applies and the contract is (to any extent) afterwards rescinded or annulled, or is for any other reason not carried into effect, the tax paid by virtue of that subsection shall (to that extent) be repaid by the Inland Revenue. Repayment must be claimed by amendment of the land transaction return made in respect of the contract.
…
(10) In this section—
(a) references to completion are to completion of the land transaction proposed, between the same parties, in substantial conformity with the contract; and
(b) "contract" includes any agreement and "conveyance" includes any instrument.
(11) Section 1122 of the Corporation Tax Act 2010 (connected persons) has effect for the purposes of this section.
45 Contract and conveyance: effect of transfer of rights
(1) This section applies where—
(a) a contract for a land transaction ("the original contract") is entered into under which the transaction is to be completed by a conveyance,
(b) there is an assignment, subsale or other transaction (relating to the whole or part of the subject-matter of the original contract) as a result of which a person other than the original purchaser becomes entitled to call for a conveyance to him, and
(c) paragraph 12B of Schedule 17A (assignment of agreement for lease) does not apply.
References in the following provisions of this section to a transfer of rights are to any such assignment, subsale or other transaction, and references to the transferor and the transferee shall be read accordingly.
(2) The transferee is not regarded as entering into a land transaction by reason of the transfer of rights, but section 44 (contract and conveyance) has effect in accordance with the following provisions of this section.
(3) That section applies as if there were a contract for a land transaction (a "secondary contract") under which—
(a) the transferee is the purchaser, and
(b) the consideration for the transaction is—
(i) so much of the consideration under the original contract as is referable to the subject-matter of the transfer of rights and is to be given (directly or indirectly) by the transferee or a person connected with him, and
(ii) the consideration given for the transfer of rights.
The substantial performance or completion of the original contract at the same time as, and in connection with, the substantial performance or completion of the secondary contract shall be disregarded except in a case where the secondary contract gives rise to a transaction that is exempt from charge by virtue of any of sections 71A to 73 (which relate to alternative property finance).
(4) Where there are successive transfers of rights, subsection (3) has effect in relation to each of them. The substantial performance or completion of the secondary contract arising from an earlier transfer of rights at the same time as, and in connection with, the substantial performance or completion of the secondary contract arising from a subsequent transfer of rights shall be disregarded.
(5) Where a transfer of rights relates to part only of the subject-matter of the original contract ("the relevant part")—
(a) subsection (8)(b) of section 44 (restriction of charge to tax on subsequent conveyance) has effect as if the reference to the amount of tax chargeable on that contract were a reference to an appropriate proportion of that amount, and
(b) a reference in the second sentence of subsection (3) above to the original contract, or a reference in subsection (4) above to the secondary contract arising from an earlier transfer of rights, is to that contract so far as relating to the relevant part (and that contract so far as not relating to the relevant part shall be treated as a separate contract).
(5A) In relation to a land transaction treated as taking place by virtue of subsection (3)—
(a) references in Schedule 7 (group relief) to the vendor shall be read as references to the vendor under the original contract;
(b) other references in this Part to the vendor shall be read, where the context permits, as referring to either the vendor under the original contract or the transferor.
(6) Section 1122 of the Corporation Tax Act 2010 (connected persons) applies for the purposes of subsection (3)(b)(i).
(7) In this section "contract" includes any agreement and "conveyance" includes any instrument."
"46 Options and rights of pre-emption
(1) The acquisition of—
(a) an option binding the grantor to enter into a land transaction, or
(b) a right of pre-emption preventing the grantor from entering into, or restricting the right of the grantor to enter into, a land transaction,
is a land transaction distinct from any land transaction resulting from the exercise of the option or right...
…
(3) The effective date of the transaction in the case of the acquisition of an option or right such as is mentioned in subsection (1) is when the option or right is acquired (as opposed to when it becomes exercisable).
(4) Nothing in this section applies to so much of an option or right of pre-emption as constitutes or forms part of a land transaction apart from this section."
The analysis the scheme relies on
"(1) The V-F Agreement was a contract to which s.45(1)(a) applied.
(2) The Option was an "assignment, subsale or other transaction" to which s.45(1)(b) applied. Section 45(1)(c) did not apply with the result that the treatment specified in s.45 applied.
(3) By s.45(2) no SDLT was payable on grant of the Option.
(4) The V-F Agreement was substantially performed and completed on 16 September 2011 when Mr Fanning took occupation of the Property and paid the balance of the consideration due and the Vendor executed the Form TR1. The Option was substantially performed on the same date when San Leon paid Mr Fanning the £100 premium due for the grant of the Option. Moreover, the V-F Agreement was completed as part of the overall arrangements that included the grant of the Option and so was "in connection with" substantial performance of the grant of the Option. Accordingly, the tailpiece to s.45(3) applied to disregard both the "substantial performance" and the "completion" of the V-F Agreement on 16 September. It followed from this that SDLT was not due on the transaction consisting of the transfer of the Property to Mr Fanning.
(5) By s.44 of FA 2003, SDLT was not due in respect of the V-F Agreement."
It is worth expanding this slightly to explain that the reason that SDLT is said not to have been due at all by reason of s.45(3) is that the only taxable transaction was one which had a consideration of £100, and that was an amount that fell below the threshold at which SDLT was payable. Further, the reference in paragraph (5) is to the entry into of the V-F Agreement not being chargeable by virtue of s.44(2), as opposed to its completion which was said to be disregarded by virtue of s.45(3).
The decisions below
a) The position had to be tested as at 16 September 2011. At that point San Leon had not exercised the Option and was not entitled to do so for another five years. On a natural interpretation of s.45(1)(b) the Option conferred no "entitlement" to obtain a conveyance (UT decision at [34]).
b) Mr Fanning's reliance on Spiro v Glencrown Properties Ltd [1991] Ch 537, and on the fact that an option creates an immediate interest registrable at the Land Registry, had no effect on the correct interpretation of s.45(1)(b) ([35]-[38]).
c) The natural interpretation was reinforced by clear indications that the kind of contingent future entitlement obtained under the Option was not sufficient to engage s.45(1)(b), bearing in mind the function of s.45 to build on s.44 ([39]-[42]).
The grounds of appeal
a) the Option was not an "other transaction" within s.45(1)(b);
b) the consideration under s.45(3) was more than £100; and
c) the secondary contract was not substantially performed, such that the tailpiece to s.45(3) was not engaged.
Submissions
Discussion
Applicable principles
"24. The modern approach to statutory construction is to have regard to the purpose of a particular provision and interpret its language, so far as possible, in a way which best gives effect to that purpose. This approach applies as much to a taxing statute as any other: see Inland Revenue Comrs v McGuckian [1997] 1 WLR 991, 999; Barclays Mercantile Business Finance Ltd v Mawson [2005] 1 AC 684, para 28. In seeking the purpose of a statutory provision, the interpreter is not confined to a literal interpretation of the words, but must have regard to the context and scheme of the relevant Act as a whole: see WT Ramsay Ltd v Inland Revenue Comrs [1982] AC 300, 323; Barclays Mercantile Business Finance Ltd v Mawson, para 29. The essence of this approach is to give the statutory provision a purposive construction in order to determine the nature of the transaction to which it was intended to apply and then to decide whether the actual transaction (which might involve considering the overall effect of a number of elements intended to operate together) answered to the statutory description. Of course this does not mean that the courts have to put their reasoning into the straitjacket of first construing the statute in the abstract and then looking at the facts. It might be more convenient to analyse the facts and then ask whether they satisfy the requirements of the statute. But however one approaches the matter, the question is always whether the relevant provision of statute, on its true construction, applies to the facts as found: see Barclays Mercantile Business Finance Ltd v Mawson, para 32."
"45. It is also common ground that the court should seek to avoid a construction that produces an absurd result, since this is unlikely to have been intended by Parliament. Thus the court will presume that Parliament did not intend a construction that would operate in a way that is unworkable, impracticable, anomalous or illogical (see the observations of Lord Kerr of Tonaghmore JSC in R v McCool [2018] 1 WLR 2431, paras 24 and 25, endorsing passages from Bennion on Statutory Interpretation, 6th ed (2013), section 312)."
"10. There are numerous authoritative statements in modern case law which emphasise the central importance in interpreting any legislation of identifying its purpose. Two examples will suffice. In R (Quintavalle) v Secretary of State for Health [2003] 2 AC 687, para 8, Lord Bingham of Cornhill said:
'Every statute other than a pure consolidating statute is, after all, enacted to make some change, or address some problem, or remove some blemish, or effect some improvement in the national life. The court's task, within the permissible bounds of interpretation, is to give effect to Parliament's purpose. So the controversial provisions should be read in the context of the statute as a whole, and the statute as a whole should be read in the historical context of the situation which led to its enactment.'
In Bloomsbury International Ltd v Department for Environment, Food and Rural Affairs [2011] 1 WLR 1546, para 10, Lord Mance JSC stated:
'In matters of statutory construction, the statutory purpose and the general scheme by which it is to be put into effect are of central importance … In this area, as in the area of contractual construction, 'the notion of words having a natural meaning' is not always very helpful (Charter Reinsurance Co Ltd v Fagan [1997] AC 313, 391C, per Lord Hoffmann), and certainly not as a starting point, before identifying the legislative purpose and scheme.'
See further Lowe and Potter, Understanding Legislation (2018), paras 3.45–3.48 (and cases there cited)."
"There are useful but not conclusive dicta in reported authorities about the way in which, in general, statutory deeming provisions ought to be interpreted and applied. They are not conclusive because they may fairly be said to point in different directions, even if not actually contradictory. The relevant dicta are mainly collected in a summary by Lord Walker of Gestingthorpe JSC in DCC Holdings (UK) Ltd v Revenue and Customs Comrs [2011] 1 WLR 44, paras 37-39, collected from Inland Revenue Comrs v Metrolands (Property Finance) Ltd [1981] 1 WLR 637, Marshall v Kerr [1995] 1 AC 148 and Jenks v Dickinson [1997] STC 853. They include the following guidance, which has remained consistent over many years:
(1) The extent of the fiction created by a deeming provision is primarily a matter of construction of the statute in which it appears.
(2) For that purpose the court should ascertain, if it can, the purposes for which and the persons between whom the statutory fiction is to be resorted to, and then apply the deeming provision that far, but not where it would produce effects clearly outside those purposes.
(3) But those purposes may be difficult to ascertain, and Parliament may not find it easy to prescribe with precision the intended limits of the artificial assumption which the deeming provision requires to be made.
(4) A deeming provision should not be applied so far as to produce unjust, absurd or anomalous results, unless the court is compelled to do so by clear language.
(5) But the court should not shrink from applying the fiction created by the deeming provision to the consequences which would inevitably flow from the fiction being real. As Lord Asquith memorably put it in East End Dwellings Co Ltd v Finsbury Borough Council [1952] AC 109, 133:
'The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.'"
Section 45(1)(b): "transfer of rights"
"[Section 45(2)] showed that the deeming provisions in s 45 had a limited purpose. Its sole purpose was to modify the operation of s 44. … But s 44 is one of a group of sections (ss 43–47) which define what is (and what is not) a land transaction. A land transaction is the acquisition of a chargeable interest. Thus s 44 is a key provision of the SDLT code which is applied generally in order to identify a land transaction; in other words what counts as the acquisition of a chargeable interest... The real question, in my judgment, is how s 44 operates, when you have made the modifications required by s 45."
"The Finance Act 2003 aimed to place the burden of SDLT on the person who was to acquire the use and enjoyment of the property in question, and to reduce that burden on those with only a transient interest in the property."
"Thus the aim of what became s 45 of the FA 2003 was to place the taxation burden on the person who is going to have the use and enjoyment of the property."
Section 45(3): consideration and substantial performance
Section 75A
Conclusion
Lord Justice Lewis:
Lord Justice Peter Jackson: