Brindleyplace Holdings S.À R.L v The Commissioners for HMRC
[2024] UKFTT 808 (TC)
The Tower One St George Wharf Limited v The Commissioners for HMRC
20 November 2024
[2024] UKUT 373 (TCC)
Upper Tribunal
A company tried to avoid paying high taxes on a property transfer within its group. The taxman said the main goal was tax dodging, not legitimate business reasons, and won. The company also failed to use a legal loophole to avoid using the market value for the tax calculation because of the timing of a previous transaction within the group. The court agreed with the taxman.
Key Facts
- •Tower One acquired a 999-year lease (Tower Lease) from B64, another company in the same group.
- •The transaction aimed for a tax-free step-up in the Tower's carrying value from book value (£30m) to market value (£200m).
- •HMRC denied group relief, arguing the transaction's main purpose was tax avoidance, and applied the deemed market value rule.
- •The FTT dismissed Tower One's appeal, finding bona fide commercial reasons but also a main purpose of tax avoidance.
- •Tower One appealed to the Upper Tribunal on two grounds: (1) whether paragraph 2(4A) of Schedule 7 Finance Act 2003 applied; (2) if so, whether SDLT should be based on market value or consideration paid.
Legal Principles
Group relief is not available if a transaction's main purpose is tax avoidance (paragraph 2(4A), Schedule 7, Finance Act 2003).
Finance Act 2003, Schedule 7, paragraph 2(4A)
The deemed market value rule applies when a company buys land from a connected company, unless an exception in s54 applies (s53, Finance Act 2003).
Finance Act 2003, sections 53, 54
The purpose of arrangements, not just the motive, is key in determining tax avoidance (Inland Revenue Commissioners v Willoughby). The intended effect, not the ultimate result, matters (Newton v Commissioner of Taxation).
Inland Revenue Commissioners v Willoughby [1997] 1 WLR 1071, Newton v Commissioner of Taxation [1958] AC 450
'Main purpose' requires a comparative assessment of the importance of tax avoidance against other purposes (Travel Document Service v HMRC).
Travel Document Service v HMRC [2018] STC 723
In determining purpose, the subjective intentions of the relevant actors must be considered (BlackRock Holdco 5 LLC v HMRC). The court must distinguish purpose from effect (BlackRock).
BlackRock Holdco 5 LLC v HMRC [2024] EWCA Civ 330
Purposive interpretation is crucial in statutory construction; the court should identify the purpose of the legislation and apply it to the facts (Hurstwood Properties (A) Ltd and others v Rossendale Borough Council).
Hurstwood Properties (A) Ltd and others v Rossendale Borough Council [2021] UKSC 16
Outcomes
Ground 1 (tax avoidance): Appeal dismissed.
The Upper Tribunal upheld the FTT's finding that, while there were bona fide commercial reasons, one of the main purposes of the arrangements was tax avoidance, precluding group relief under paragraph 2(4A), Schedule 7, Finance Act 2003. The fact that the tax avoidance scheme ultimately failed did not negate the existence of this purpose.
Ground 2 (deemed market value rule): Appeal dismissed.
The Upper Tribunal upheld the FTT's finding that the Case 3 Exception to the deemed market value rule did not apply. The prior grant of the lease, which was on the same day as the transfer to Tower One, fell within the three-year look-back period and was subject to a group relief claim.