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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Project Blue Ltd v Revenue and Customs  EWCA Civ 485 (26 May 2016)
Cite as:  BTC 22,  1 WLR 368,  2 All ER 549,  EWCA Civ 485,  STI 1795,  WLR 368,  STC 2168
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ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
Mr Justice Morgan and Judge Howard Nowlan
FTC/119/2013, FTC/09/2014, FTC/24/2014,  UKUT 564 (TCC)
Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE LEWISON
LORD JUSTICE UNDERHILL
| PROJECT BLUE LIMITED
(formerly Project Blue (Guernsey) Limited)
|- and -
|THE COMMISSIONERS FOR HER
MAJESTY'S REVENUE AND CUSTOMS
Malcolm Gammie CBE QC and Hui Ling McCarthy (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the Respondents
Hearing dates : 10, 11 and 12 May 2016
Crown Copyright ©
Lord Justice Patten :
"(3) For the purposes of this Part—
(a) the creation of a chargeable interest is—
(i) an acquisition by the person becoming entitled to the interest created, and
(ii) a disposal by the person whose interest or right is subject to the interest created;
(4) References in this Part to the "purchaser" and "vendor", in relation to a land transaction, are to the person acquiring and the person disposing of the subject-matter of the transaction.
These expressions apply even if there is no consideration given for the transaction.
(5) A person is not treated as a purchaser unless he has given consideration for, or is a party to, the transaction.
(6) References in this Part to the subject-matter of a land transaction are to the chargeable interest acquired (the "main subject-matter"), together with any interest or right appurtenant or pertaining to it that is acquired with it."
(a) an estate, interest, right or power in or over land in the United Kingdom or
(b) the benefit of an obligation, restriction or condition affecting the value of any such estate, interest, right or power,
other than an exempt interest.
(2) The following are exempt interests—
(a) any security interest;…"
(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 subsection (3) of section 73 (alternative property finance: land sold to financial institution and re-sold to individual).
"23. Section 43 (1) defines a "land transaction" as "any acquisition of a chargeable interest". The focus is on what is acquired; not on what is disposed of. An acquisition can take place without any act of the parties. In my judgment, therefore, the fact that B acquires a chargeable interest as the result of an instrument giving effect to a transaction between him and A does not necessarily entail the proposition that the interest in A's hands was itself a chargeable interest. If there is no land transaction, there cannot have been the acquisition of a chargeable interest. Although the word "vendor" is defined by section 43 (4) it is notable that the word does not appear anywhere in section 44. Accordingly, I do not see any inconsistency between, on the one hand, accepting that the Company was entitled to an equitable interest (which is an interest in land in the real world) and, on the other, concluding that that equitable interest does not count as a chargeable interest for the purposes of SDLT while it is in the Company's hands.
30. Paragraph 10 of Schedule 15 is not so much concerned with the acquisition of a chargeable interest by a partnership as the transfer by a partner of a chargeable interest. It looks at a transaction from the perspective of the transferor. This contrasts with the general scheme of SDLT whose focus is on acquisitions, and looks at transactions from the perspective of the transferee. It seems to me to be clear that a partner cannot transfer a chargeable interest to a partnership unless he has a chargeable interest to transfer. But that is not to say that he cannot transfer an interest in land to a partnership; merely that it is not a chargeable interest in his hands. In the hands of the partnership, of course, it will be a chargeable interest and the time at which the partnership acquired that chargeable interest is ascertained by the application of section 44 (3) as modified by section 45 (3) .
32. Accordingly, in my judgment the correct analysis is as follows.
33. When the Company entered into the contract with L & G section 44 (2) applied. Thus the Company was not regarded as having entered into a land transaction. Because a land transaction is defined as any acquisition of a chargeable interest, it must also follow that the Company was not regarded as having acquired a chargeable interest. It would acquire a chargeable interest on completion if section 44 (3) applied. Section 44 is intended to apply generally to the SDLT code.
34. When the Company entered into the contract with the Partnership section 45 (2) applied. Thus the Partnership was not regarded as having entered into a land transaction and, just as in the case of the Company, was not regarded as having acquired a chargeable interest. However, it was regarded as having entered into a contract for a land transaction, the consideration for which was so much of the consideration under the original contract as is referable to the subject-matter of the transfer of rights. In the jargon of the Act the contract between L & G and the Company is "the original contract"; and the contract between the Company and the Partnership is "the secondary contract". Section 44 takes effect subject to modifications made by section 45.
35. Both the contract between L & G and the Company and the contract between the Company and the Partnership were completed on the same day. Thus on the facts of this case completion of the original contract took place at the same time as, and in connection with, completion of the secondary contract. But in those circumstances section 45 (3) says that the completion of the original contract must be disregarded. This disregard must be made for the purpose of section 44. The inevitable consequence of the statutory instruction to disregard completion of the contract between L & G and the Company for the purpose of section 44 is that section 44 (3) does not apply to completion of that contract. Since section 44 (2) has the result that the Company did not acquire a chargeable interest by entering into the contract with L & G, and on the facts of this case section 44 (3) does not apply to completion of that contract, it must follow that the Company did not enter into a land transaction for the purposes of SDLT. Accordingly for the purposes of SDLT the Company never acquired a chargeable interest.
36. When the contract between the Company and the Partnership was completed, section 44 (3) applied to the latter's acquisition of a chargeable interest. Thus the effective date of its land transaction was the date of completion of its contract with the Company.
37. Paragraph 10 of Schedule 15 only applies if a partner transfers a chargeable interest to a partnership. Since, for the purposes of SDLT, the Company did not acquire a chargeable interest, that paragraph cannot apply. It follows, therefore that the Partnership is not entitled to rely on the exemption. It follows, therefore that the Partnership is liable to pay SDLT on the consideration which it gave for its own acquisition, as prescribed by section 50 and Schedule 4 paragraph 1."
"(1) This section applies where arrangements are entered into between a person and a financial institution under which—
(a) the institution purchases a major interest in land or an undivided share of a major interest in land ("the first transaction"),
(b) where the interest purchased is an undivided share, the major interest is held on trust for the institution and the person as beneficial tenants in common,
(c) the institution (or the person holding the land on trust as mentioned in paragraph (b)) grants to the person out of the major interest a lease (if the major interest is freehold) or a sub-lease (if the major interest is leasehold) ("the second transaction"), and
(d) the institution and the person enter into an agreement under which the person has a right to require the institution or its successor in title to transfer to the person (in one transaction or a series of transactions) the whole interest purchased by the institution under the first transaction.
(2) The first transaction is exempt from charge if the vendor is—
(a) the person, or
(b) another financial institution by whom the interest was acquired under arrangements of the kind mentioned in subsection (1) entered into between it and the person.
(3) The second transaction is exempt from charge if the provisions of this Part relating to the first transaction are complied with (including the payment of any tax chargeable)."
"(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."
(1) This section applies where–
(a) one person (V) disposes of a chargeable interest and another person (P) acquires either it or a chargeable interest deriving from it,
(b) a number of transactions (including the disposal and acquisition) are involved in connection with the disposal and acquisition ("the scheme transactions"), and
(c) the sum of the amounts of stamp duty land tax payable in respect of the scheme transactions is less than the amount that would be payable on a notional land transaction effecting the acquisition of V's chargeable interest by P on its disposal by V.
(2) In subsection (1) "transaction" includes, in particular–
(a) a non-land transaction,
(b) an agreement, offer or undertaking not to take specified action,
(c) any kind of arrangement whether or not it could otherwise be described as a transaction, and
(d) a transaction which takes place after the acquisition by P of the chargeable interest.
(3) The scheme transactions may include, for example–
(a) the acquisition by P of a lease deriving from a freehold owned or formerly owned by V;
(b) a sub-sale to a third person;
(c) the grant of a lease to a third person subject to a right to terminate;
(d) the exercise of a right to terminate a lease or to take some other action;
(e) an agreement not to exercise a right to terminate a lease or to take some other action;
(f) the variation of a right to terminate a lease or to take some other action.
(4) Where this section applies–
(a) any of the scheme transactions which is a land transaction shall be disregarded for the purposes of this Part, but
(b) there shall be a notional land transaction for the purposes of this Part effecting the acquisition of V's chargeable interest by P on its disposal by V.
(5) The chargeable consideration on the notional transaction mentioned in subsections (1)(c) and (4)(b) is the largest amount (or aggregate amount)–
(a) given by or on behalf of any one person by way of consideration for the scheme transactions, or
(b) received by or on behalf of V (or a person connected with V within the meaning of section 839 of the Taxes Act 1988) by way of consideration for the scheme transactions.
(6) The effective date of the notional transaction is–
(a) the last date of completion for the scheme transactions, or
(b) if earlier, the last date on which a contract in respect of the scheme transactions is substantially performed.
(7) This section does not apply where subsection (1)(c) is satisfied only by reason of–
(a) sections 71A to 73, or
(b) a provision of Schedule 9."
Lord Justice Lewison:
Lord Justice Underhill: