Tower One - SDLT group relief and the ‘effective date’ of a transaction

The recent stamp duty land tax (SDLT) Upper Tribunal case of The Tower One St George Wharf Ltd v HMRC [2024] UKUT 373 (TCC) upheld the First-tier Tribunal (FTT) decision that: 

• SDLT group relief was not available on a group transfer because it formed part of arrangements of which a main purpose was the avoidance of corporation tax; and
• The distribution exemption from the connected persons market value charge did not apply where a claim for group relief had been made in the three years prior to the time of the distribution. 

Legislative references are to Finance Act 2003.

The Berkeley group wanted to transfer a £200 million property to a group special purpose vehicle (SPV) (Tower One) for what were accepted to be genuine commercial reasons. However, after taking tax advice, a potential c.£40 million in corporation tax savings was identified if the property was transferred indirectly as follows:

• A 999-year lease was granted to a group company (B64) for book value of £30million;
• B64 was sold to Tower One at market value; and
• B64 distributed the property to Tower One at book value.

All these steps were carried out on the same day. Group relief from SDLT under Schedule 7 Finance Act 2003 was claimed for both the lease grant and the distribution.

It was held in the FTT that the corporation tax planning was ineffective.

HMRC chose not to dispute the claim for relief on the first transaction on the basis that subsale relief applied but assessed Tower One to SDLT on the market value of the second. This was on the basis that:

• Group relief wasn’t available as a main purpose of the arrangements was to avoid corporation tax; and 
• The charge was on market value as the transfer was to a connected company and the distribution ‘exemption’ did not apply.

The Upper Tribunal agreed with the FTT decision that group relief was not available as corporation tax avoidance was a main purpose of the arrangements. The Tribunal confirmed that:

• The test was not of the outcome or effect of the arrangements, so the fact that the planning did not work was not relevant to what the purpose of the arrangements was; 
• The fact that the expected corporation tax benefit was contingent on a sale of Tower One was not relevant as there can be a purpose of avoiding future tax that may never arise; 
• The purpose of arrangements does not wholly depend on the subjective intentions of the decision maker, but may be discernible from the steps themselves: there is no test of actors’ motives as such. The Upper Tribunal referred extensively here to the decision in BlackRock; and
• A tax purpose can be a main purpose even where there is a main commercial purpose served by the arrangements.

The points emerging from this decision for the wider interpretation of ‘main purpose’ tests are discussed in more detail in our separate article in today’s edition.

A transfer to a connected company is chargeable to SDLT at not less than market value under section 53 Finance Act 2003 unless the transfer is part of a distribution of assets and group relief has not been claimed in respect of the property by the transferee within the period of three years before the effective date of the transaction. 

The taxpayer had contended that if group relief were not available:

• The distribution exemption should apply because B64 transferred the property at less than market value to its shareholder Tower One so SDLT was only due on the book value consideration given;
• The claim to group relief made by Tower One was made on the effective date of the transaction, not within the period of three years prior to the date of acquisition; and
• In any case the claim should be treated as not having been made because HMRC had asserted sub-sale relief applied instead.

The first point above was not contested, but on the second, the Upper Tribunal held that the relevant provision should be read purposively in accordance with the Explanatory Notes to the Finance Bill to deny the distribution ‘exemption’ if a claim is made at any point in the three years preceding the distribution - so effectively ‘date’ in this context means ‘time’. And then the test was merely whether a claim for relief had been made so the apparent fact that the claim had no effect was not relevant.

The conclusion that the effective date of a transaction can mean the effective time is in line with decisions in other SDLT tribunal cases that consider the use of the property at the moment of transfer and by the end of the effective date.

However, the discussion of the main purpose test is of wider interest as discussed in our separate article.

For further information please contact:

• Simon Yeo
• Michael Hope