FTT provides clarity to time limits for section 75A discovery assessments
In Rakshit, the First-tier Tribunal clarified the applicable time limits for section 75A discovery assessments
Clarity on discovery assessment time limits
On 15 December 2023, the First-tier Tribunal (FTT) handed down its decision in Rakshit and Ors v HMRC [2023] UKFTT 01044 (TC) which, among other issues, provided clarity to the applicable time limits that apply for HMRC to raise a discovery assessment in relation to the stamp duty land tax (SDLT) anti-avoidance rule found in section 75A Finance Act 2003 (section 75A). The FTT held that there was not a failure to submit a return for the purpose of section 75A discovery assessments (and therefore the 20-year time limit did not apply) because a SDLT return was submitted by the same purchaser over the same chargeable interest as would have been submitted for a section 75A notional transaction. The FTT rejected HMRC’s argument that there is a strict requirement that a section 75A notional transaction return must be submitted and a failure to do so results in HMRC having a 20-year time limit to raise a section 75A discovery assessment.
The case involved taxpayers entering into a marketed Stamp Duty Land Tax (SDLT) scheme in 2010 on the purchase of a property. They submitted nil SDLT returns for certain transaction steps that formed the scheme. In 2011, HMRC raised enquiries into these returns and in 2017, HMRC raised discovery assessments on the basis that Section 75A applied. In 2018, the Supreme Court held in Project Blue that such schemes were subject to section 75A. Therefore, by the time the case went to the FTT, the taxpayers’ appeals were on procedural grounds only.
The taxpayers appealed on the basis that the discovery assessments were out of time as they exceeded the six-year time limit for carelessness. HMRC argued that the taxpayers were required to submit a section 75A notional transaction return (which is a separate and unqualified obligation to submitting a regular SDLT return) and a failure to do so meant that the 20-year time limit applied for the section 75A discovery assessments.
The FTT held that the discovery assessments were out of time. The FTT looked at the requirement to submit a return under section 76 Finance Act 2003 and stated that this section requires that an SDLT return be filed by the purchaser in relation to an acquisition of a chargeable interest. It does not matter whether the acquisition for SDLT purposes took place pursuant to an actual transaction or to a notional transaction under section 75A. Accordingly, as the taxpayers had submitted an SDLT return in relation to the same purchaser over the same chargeable interest as the purported section 75A notional transaction, the requirement in section 76 was met.
The FTT’s decision here is a sensible one. The purpose of the 20-year time limit is to give HMRC wider discovery assessment powers in cases where there is reprehensible behaviour (such as where the loss of tax revenue is a result of the taxpayer’s deliberate (and not just careless) behaviour). It is also, arguably, intended in situations where there is a complete failure to submit a return (resulting in HMRC having no knowledge of the transaction). However, under HMRC’s interpretation, the 20-year time limit could apply where taxpayers have not been careless and have prepared their SDLT returns on the reasonable belief that section 75A does not apply.
The FTT’s decision does not appear to cover situations where an SDLT return is submitted by a person other than the purchaser of the section 75A notional transaction, or where the transaction contains both asset and share steps (where there may be, for example, HMRC clearance on a stamp duty relief). Accordingly, there remain gaps for HMRC to continue to argue that the 20-year time limit applies.
This case also considered whether the taxpayers’ conduct estopped them from arguing that the enquiry notices were invalid. This aspect is covered in our connected article.
