The Tower One St George Wharf Limited v The Commissioners for HMRC

The Appellant appeals against a discovery assessment to stamp duty land tax (“SDLT”) on its acquisition from another company in the same group of a 999-year lease in respect of a residential property development known as the “Tower”.

The group had bona fide commercial reasons for transferring the Tower to the Appellant company, a special purpose vehicle (“SPV”), namely to ring-fence risks and potential liabilities associated with the development, and to provide greater financial flexibility by opening up the prospect of securitized borrowing from a wider group of lenders. The group’s tax advisers considered that if the Tower was transferred to the Appellant via a particular series of steps, a significant corporation tax advantage could be achieved. Pursuant to this advice, the Tower was transferred to the Appellant by a series of steps which were all executed on the same day. These steps included the grant by the group company that legally owned the Tower (“SGSL”) of a 999-year lease to another group company (“B64”) at book value which was significantly less than market value, a transfer of ownership of B64 itself from another group company to the Appellant, followed by a transfer of the lease from B64 to the Appellant at book value. The Appellant recognized the intended corporation tax benefit in its company tax return, but following an HMRC enquiry into that return, the Appellant accepted that in fact no such benefit was available. The consequence was that the corporation tax position of the Appellant was ultimately no more advantageous, and possibly less advantageous, than if the Tower had been transferred directly from SGSL to the intended SPV.

The land transaction return filed by the Appellant in respect of its acquisition of the lease from B64 included a claim for SDLT group relief under Schedule 7 of the Finance Act 2003 (“FA 2003”), as did the land transaction return filed by B64 in respect of the initial grant of the lease by SGSL to B64. Following a review, HMRC decided that SDLT group relief was not available to the Appellant, and issued an assessment to SDLT based on the market value of the lease at the time of its acquisition by the Appellant. The Appellant appeals against that assessment.

In this decision, the Tribunal dismisses the appeal, finding that:

The Appellant company is a member of a group of companies (the “ group ”), the principal member of which is The Berkeley Group Holdings plc (“ Berkeley Holdings ”), a listed company whose shares are traded on the London Stock Exchange. The business of the group is property development with a focus on residential homes.

Other companies in the group include the Berkeley Group plc (“ Berkeley Group ”), St George PLC (“ St George ”), St George (South London) Limited (“ SGSL ”), and Berkeley Sixty-Four Limited (“ B64 ”).

Prior to 5 July 2011, St George, B64 and the Appellant were each owned by Berkeley Group, and SGSL was owned by St George.

In 1997, SGSL acquired from unconnected third parties the freehold interest in a site in the Nine Elms area of Vauxhall known as St George Wharf (“ St George Wharf ”).

In 2000, SGSL sold St George Wharf to St George, but the legal interest was not transferred to St George. SGSL thus held the legal title to St George Wharf on bare trust for St George.

St George carried out a phased residential development of St George Wharf. The final phase of the development was a 50-storey residential building known as the Tower (the “ Tower ”).

The residential units in the Tower were offered for sale “off-plan”, and agreements for lease were entered into with purchasers of the residential units under which deposits were paid.

In February 2010, Mr Stearn, then group financial controller, had a meeting with the group’s tax advisers, PricewaterhouseCoopers (“ PwC ”), at which he commented that there would be commercial advantages to moving certain developments into separate legal entities. About a week later, PwC prepared a discussion document (the “ step plan ”) showing that a corporation tax advantage, in the form of a tax-free step-up from book cost to market value in the carrying value of the Tower for corporation tax purposes, could be obtained if certain steps were implemented within the group in relation to the Tower.

On 28 February 2010, Mr Stearn sent a memorandum to Mr Simpkin, then group finance director, which stated amongst other matters as follows:

PwC prepared further iterations of the step plan in November 2010 and July 2011, which developed and refined the earlier iterations. The final step plan dated July 2011 included the following steps:

No alternative arrangements were considered for transferring the Tower to the Appellant.

A professional surveyors’ valuation of a long leasehold interest in the Tower as at 31 December 2010 concluded that its market value was £200 million. At that date, the foundations of the Tower had been laid, and St George’s cost of the Tower was calculated as being £29,900,750.

This meant that up to that point there had accrued a latent profit/gain in the Tower of some £170 million, being the difference between the book cost of some £30 million and the then market value of some £200 million. The intended effect of the step plan was that a subsequent disposal of the Tower by the Appellant would only give rise to taxable profits for the Appellant to the extent that the sale proceeds exceeded the £200 million market value of the Lease as at the date of its acquisition. The step plan thus envisaged that the £170 million “step up” of the carrying value of the Tower to its present market value would be tax free.

On 5 July 2011, there was held a series of shareholder and director meetings of the companies involved to execute the various transactions in accordance with the step plan. These included the following.

The benefit of the tax-free “step-up” from book cost to market value in the base cost/carrying value of the Tower, as described in the PwC steps plans, was recognised in the accounts and corporation tax return of the Appellant for the year ended 30 April 2012. HMRC enquired into that tax return and disagreed with PwC’s tax analysis of the transactions. As a result, by a closure notice issued on 5 February 2016, HMRC adjusted the Appellant’s corporation tax return. The Appellant subsequently accepted that no such benefit was available. The consequence was that the corporation tax position of the Appellant was ultimately no more advantageous, and possibly less advantageous, than if the Tower had been transferred directly from SGSL to the intended SPV.

As regards stamp duty land tax (“ SDLT ”), the land transaction returns (SDLT1) filed by:

Following a review of the land transaction returns, HMRC concluded that:

By a notice of assessment dated 21 May 2015, made under Part 5 of Schedule 10 to the Finance Act 2003 (“ FA 2003 ”), HMRC assessed the Appellant to SDLT of £8 million in respect of the Transfer, stated to be tax at 4% on consideration of £200 million. The Appellant appealed against this assessment and, following HMRC’s review upholding the assessment, notified its appeal to the Tribunal on 18 May 2016.

The hearing of this appeal was held on 14, 15 and 16 March 2022. Oral evidence was given by Mr Stearn, director of the Appellant company and now group finance director.

The Appellant submits that:

HMRC submit that the appeal should be dismissed in its entirety on the grounds that:

SDLT is a tax charged on “land transactions” (s 42(1) FA 2003). A “land transaction” is the acquisition of a “chargeable interest” (s 43(1) FA 2003). A “chargeable interest” is (other than an exempt interest) “ an estate, interest, right or power in or over land ” or “ the benefit of an obligation, restriction or condition affecting the value of any such estate, interest, right or power ” (s 48(1) FA 2003).

SDLT is ordinarily charged by reference to the consideration given for the acquisition (s 50(1) FA 2003). It is charged on the purchaser (s 85(1) FA 2003), who must notify the transaction by way of a land transaction return within (in 2011) 30 days of the effective date of the transaction (s.76(1) FA 2003). The effective date of the transaction except where otherwise provided is the date of completion (s 119(1) FA 2003).

References in this decision to provisions of the FA 2003 are to the versions of those provisions as in force at the time of the transactions in issue in this appeal. Although these provisions are for convenience described in this decision in the present tense, some have since been substantially amended.

Section 44 FA 2003 is entitled “Contract and conveyance”. Section 44(1) provides that that section applies where a contract for a land transaction is entered into under which the transaction is to be completed by a conveyance. Section 44(10) defines “contract” to include “any agreement”, and defines “conveyance” to include “any instrument”.

Section 45 FA 2003 is entitled “Contract and conveyance: effect of transfer of rights”. Section 45(1) provides that that 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, sub-sale 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 does not apply.

By virtue of s 45(3) FA 2003, where that section applies, s 44 applies as if there were a contract for a land transaction (referred to as a “secondary contract”) under which the transferee of the assignment, sub-sale or other transaction is the purchaser, and 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.

Part 1 Schedule 7 FA 2003 provides for a form of relief from SDLT known as “group relief” (s 62(1) and (2) FA 2003). Such relief must be claimed in a land transaction return or an amendment to such a return (s 62(3) FA 2003).

Paragraph 1(1) Schedule 7 FA 2003 provides that “ A transaction is exempt from charge if the vendor and purchaser are companies that at the effective date of the transaction are members of the same group ”. Subsequent sub-paragraphs of paragraph 1 Schedule 7 FA 2003 determine when companies will be members of the same group for purposes of this provision.

Paragraph 2(4A) Schedule 7 FA 2003 provides that:

Paragraph 2(5) Schedule 7 FA 2003 provides that:

Section 53 FA 2003 is entitled “Deemed market value where transaction involves connected company”. Section 53(1) provides that that section applies where the purchaser is a company and the vendor is connected with the purchaser. Section 53(2) FA 2003 defines “connected” for purposes of the section by reference to s 1122 of the Corporation Tax Act 2010.

Where s 53 FA 2003 applies, it has pursuant to s 53(1A) the following effect. The chargeable consideration for the transaction shall be taken to be not less than (a) the market value of the subject-matter of the transaction as at the effective date of the transaction, and (b) if the acquisition is the grant of a lease at a rent, that rent.

Section 53(4) FA 2003 provides that s 53 is subject to the exceptions provided for in s 54.

Section 54(1) and (4) provide that one of the cases in which s 53 shall not apply is the following:

Section 75A FA 2003 is entitled “Anti-avoidance”. Section 75A(1) provides:

The Tribunal finds that at all material times the group of companies wanted to transfer the Tower to the Appellant in order to ring-fence risks and potential liabilities associated with the development, and to provide greater financial flexibility by opening up the prospect of securitized borrowing from a wider group of lenders. These were bona fide commercial reasons, that provided a commercial benefit.

The Tribunal is satisfied on the evidence that the group, when it first discussed with PwC the possibility of transferring the Tower to an SPV, was contemplating doing so for the reasons identified in the previous paragraph. The evidence of Mr Stearn is that he contacted PwC, the group’s principal tax advisers at the time, as the group was “seeking to ensure that transferring the development to an SPV would not give rise to adverse tax consequences”. The Tribunal is satisfied that the process that led to the series of transactions on 5 July 2011 was not originally initiated out of a motive to avoid tax. The Tribunal is satisfied that if the group had never been made aware by PwC of the possible corporation tax advantage that could be obtained via the step plan, the group would likely have transferred the Tower directly from SGSL to the Appellant or another SPV in order to achieve its original purposes.

The Tribunal is satisfied that once the group received the advice about the corporation tax advantage that could be obtained, it attached considerable importance to ensuring that this advice was correctly followed, and that the expected significant tax benefit was obtained.

The PwC step plan went through several iterations. Mr Stearn could not recall exactly how much PwC was paid for their advice, but suspected that it was in the tens of thousands of pounds. Execution of the step plan required a considerable number of transactions, the documentation for which had to be carefully prepared in advance (see paragraph 83(2) below).

The Tribunal finds that if the transactions entered into on 5 July 2011 had been effective to produce the expected corporation tax advantages, the group would have saved somewhere in the region of £44 million in corporation tax (being the tax on the £170 million tax free “step up” from book value to market value), albeit this benefit might have taken several years to be realised. This was on any view a very significant amount.

Even if the Appellant had had no other reason for wanting to transfer the Tower to the Appellant, the mere possibility of realising a tax advantage of this magnitude might in and of itself have arguably provided a financial incentive for the Appellant to do so. However, the Tribunal proceeds on the basis that the group would not have transferred the Tower to the Appellant solely for the corporation tax advantage if there had been no other commercial reason for doing so. The evidence of Mr Stearn is that the group would not have done so, and there is no evidence positively indicating the contrary.

HMRC suggest that the group must have considered the original reasons for transferring the Tower to the Appellant to be less important than the expected tax advantages, given that the risk of a catastrophic event affecting the Tower was extremely small, that the ring-fencing would not completely insulate the rest of the group from damage caused by any such catastrophic event (for instance, through reputational damage), given that funding for the development might still be found even if it was not transferred to an SPV, given that the development could always have been moved to an SPV at a later time if this had proved genuinely necessary, and given the magnitude of the expected tax saving. However, the evidence before the Tribunal is not sufficient to allow the Tribunal to make any assessment of its own of the commercial significance of these matters, and to weigh them against the significance of the tax benefits. The Tribunal is unable to conclude that the tax benefits ever became more important to the Appellant than the original commercial considerations.

For s 45 FA 2003 to apply, the “assignment, sub-sale or other transaction” referred to in s 45(1)(b) must entered into before the land transaction referred to in s 45(1)(a) has been completed. If a land transaction by which B acquires a chargeable interest from A has already been completed, s 45 will not apply to any contract or other transaction entered into by B only after such completion by which the same interest is subsequently sold or transferred to C.

For s 45 FA 2003 to apply, it is necessary that, as a result of the “assignment, sub-sale or other transaction” referred to in s 45(1)(b), a person other than the original purchaser has acquired a legal right to call for a conveyance. The Tribunal considers that this follows from the use of the word “entitled” in this provision. The word “entitled” connotes a legal right or title. Although no clear authority for or against this conclusion was cited in argument, the Appellant submitted that this conclusion was supported by V ardy Properties v Revenue & Customs [2012] UKFTT 564 (TC) .

The effect of paragraph 2(4A) Schedule 7 FA 2003, read together with paragraph 2(5) Schedule 7 FA 2003, is to disallow group relief if (1) the transaction on which SDLT would (but for any group relief) be chargeable is part of a scheme, agreement or understanding, whether or not legally enforceable, and (2) a main purpose of that scheme, agreement or understanding is avoiding liability to tax.

In other words, the application of paragraph 2(4A) Schedule 7 FA 2003 is not confined to circumstances where the specific transaction on which SDLT would be chargeable itself has the effect of avoiding liability to tax. If that specific transaction is part of a broader scheme, agreement or understanding, it is enough that other transactions within the scheme, agreement or understanding have the effect of avoiding tax, if a main purpose of the scheme, agreement or understanding as a whole is the avoidance of tax. Whether or not such a purpose exists must therefore be determined by examining the scheme, agreement or understanding as a whole. This cannot be determined by considering in isolation the specific transaction on which SDLT is said to be chargeable.

Where it is other transactions within the scheme, agreement or understanding that have the effect of avoiding tax, it is immaterial whether those other transactions are effected before, simultaneously with, or after the specific transaction on which SDLT would be chargeable. All that is material is that all of the transactions are part of a single scheme, agreement or understanding, which as a whole has as a main purpose the avoidance of tax.

This all follows from the plain wording of paragraph 2(4A) and (5) Schedule 7 FA 2003.

The mere fact that the specific transaction on which SDLT is said to be chargeable occurs at a later point in time than any transaction(s) having the effect of avoiding tax will therefore not preclude denial of group relief pursuant to paragraph 2(4A) Schedule 7 FA 2003, if all of those transactions form part of the same arrangements for purposes of that provision. It may well be true that in such a case, the transaction on which SDLT is said to be chargeable itself plays no role in the avoidance of tax, given that the avoidance of tax will by then have already been fully effected. However, it is clear from the wording of paragraph 2(4A) Schedule 7 FA 2003 that “arrangements” for purposes of that provision may have more than one main purpose. Main purposes of the “arrangements” (that is, the broader scheme, agreement or understanding) may include both the avoidance of tax and another purpose. It may well be that the earlier transactions gave effect to the main purpose of avoiding tax, while the specific transaction on which SDLT is chargeable gives effect to another main purpose. Nevertheless, in such a situation the specific transaction on which SDLT is chargeable may still form part of the same scheme, agreement or understanding, one of the main purposes of which was the avoidance of tax.

Whether several transactions form part of the same “arrangements” will depend on the circumstances of the individual case. Paragraph 2(5) Schedule 7 FA 2003 makes clear that “arrangements” might consist merely of an “understanding” that is not legally binding. Thus, different transactions could form part of the same “arrangements” even though they involve different participants and occur at different points in time, and even though the participants in each of the transactions are under no legal obligation to enter into any of the transactions prior to the point in time at which they actually do so. For several transactions to be part of the same “arrangements”, it would suffice that, prior to the entry into any of the transactions, each of the participants in each of the transactions has an understanding that the transaction that that participant is about to enter into forms part of a scheme, agreement or understanding, and knows the main purposes thereof.

The Tribunal considers that transactions entered into by different parties at different points in time will in practice almost inevitably be part of the same “arrangements” if they are effected pursuant to a single plan formulated before they are effected, and if the parties to each of the transactions are aware of that plan and are acting with the intention of giving effect to it.

The expression “avoidance of liability to tax” is not defined for purposes of paragraph 2(4A) Schedule 7 FA 2003, apart from the fact that the provision makes clear that it refers to avoidance of liability to stamp duty, income tax, corporation tax, capital gains tax and/or SDLT .

It is unnecessary in this appeal to define in a comprehensive way in the abstract the concept of tax avoidance, which, as the Appellant says, “has been the subject of debate for decades in a large number of cases and in vast amounts of academic and professional literature, both in the United Kingdom and in other Commonwealth countries, especially those that have chosen to implement a general anti‐avoidance rule”.

In general, it may be said that it is not tax avoidance to accept an offer of freedom from tax which Parliament has deliberately made, but that it is tax avoidance to adopt a course of action designed to conflict with or defeat the evident intention of Parliament by taking advantage of a fiscally attractive option afforded by the tax legislation without incurring the economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such reduction in tax liability ( Inland Revenue Commissioners v Willoughby [1997] 1 WLR 1071 (“ Willoughby ”), 1079B-G, 1081B-D).

It may also be said that where there are two ways for a taxpayer to carry out a genuine commercial transaction, it is natural for the taxpayer to choose the way that will involve paying the least amount of tax, and that the taxpayer by making that choice cannot for that reason alone be said to be acting with a main purpose of avoiding tax ( Commissioners of Inland Revenue v Brebner (1967) 43 TC 705, 718H-I). However, it follows from the previous paragraph above that a taxpayer in this situation may well be acting with a main purpose of avoiding tax if the chosen way conflicts with or defeats the evident intention of Parliament. The mere fact that the taxpayer is carrying out a genuine commercial transaction does not mean that no means adopted for effecting that transaction can ever be tax avoidance.

“Purpose” means the intended effect of the arrangements, not the motive of the taxpayer for wanting to achieve the intended effects. A determination of “purpose” therefore does not necessarily require a determination of the subjective state of mind of the taxpayer, but may be ascertainable from the terms of the arrangements themselves. Where there is a complicated series of transactions that were the result of a concerted plan, and where a consideration of the whole of the transactions shows that there was concerted action to achieve an end of the avoidance of tax, then one of the ends sought to be achieved was the avoidance of liability to tax ( Newton v Commissioner of Taxation [1958] AC 450, 465-467).

The terms of paragraph 2(4A) Schedule 7 FA 2003 refer to the purpose of the arrangements , not the purpose of the taxpayer in entering into the arrangements. Where arrangements are complex and/or have been devised by specialists other than the taxpayer, regard may therefore also be had to wider considerations such as why the arrangements took the form that they did, how those who devised them hoped that they would work, and the way that those who devised them presented them to the taxpayer(s). (Compare Seven Individuals v Revenue and Customs Commissioners [2017] UKUT 132 (TCC) at [97]-[104]).

There is a distinction between the purpose of arrangements, and the question whether the arrangements are effective in achieving that purpose. The fact that arrangements ultimately fail to achieve their purpose (for instance, because they ultimately fail to satisfy the necessary legal criteria to produce the intended legal effect) will not retrospectively negate the fact that they had that purpose. Purpose does not mean “end result in fact”, as opposed to the end result that the arrangements were designed to achieve. Arrangements may be intended to achieve a purpose, even if they ultimately fail to achieve it due to an inherent flaw in the design of the arrangements themselves. Thus, arrangements can have the purpose of avoidance of liability to tax, even if ultimately no liability to tax is avoided.

The Tribunal does not accept the Appellant’s argument that there is necessarily a distinction between the purpose of arrangements, and the reason for choosing particular means for giving effect to that purpose. The Appellant gives the hypothetical example of a businessperson who travels from A to B to attend a business meeting, and who decides to travel by rail by a particular circuitous route in the belief that a discount will be offered on all future rail travel for 12 months if the trip is undertaken by that specific route. The Appellant suggests that in this example, the sole purpose of the journey is to attend the business meeting, and obtaining a discount on future travel is merely the reason for choosing a particular means for achieving this purpose. The Tribunal does not consider this to be a valid analysis for purposes of paragraph 2(4A) Schedule 7 FA 2003.

In this example, the overall arrangement is not for a trip from A to B , but rather for a trip from A to B via the particular route chosen . The overall arrangement as a whole has two purposes, namely (1) to attend a business meeting in B, and (2) to obtain a discount on future travel. Even if, at the outset, the businessperson is unaware of the possibility of the discount, and is only proposing to travel from A to B by the quickest route, once that person becomes aware of the possibility of the discount and deliberately decides to travel specifically by the more circuitous route in order to obtain this benefit, the specific route becomes part of the overall arrangement, and obtaining the discount becomes one of the purposes of the trip.

Where there are two ways for a taxpayer to carry out a bona fide commercial transaction, one of which involves tax avoidance and one of which does not, and where the taxpayer chooses the way that involves tax avoidance, then tax avoidance will be at least one of the purposes of adopting that course, whether or not the taxpayer has a subjective motive of avoiding tax ( Willoughby at 1079C-D, 1081B-D).

Paragraph 2(4A) Schedule 7 FA 2003 denies group relief only where the arrangements have the avoidance of liability to tax as a “ main ” purpose.

It is clear from this wording that arrangements can have more than one main purpose.

A purpose will be a “main” purpose if its achievement is one of the primary aims of the arrangements. A purpose can be a “main” purpose, even if it is not as significant a consideration as another main purpose. Thus, if arrangements are driven by two particularly significant aims, A and B, as well as other subsidiary aims, both A and B may both be “main” purposes even if the taxpayer considers A to be more important than B.

Indeed, purpose B could be a main purpose of the arrangements, even if the arrangements would not have been entered into at all but for the need to achieve purpose A. Even if purpose A is the sole reason for entering into arrangements in the first place, once the decision to enter into the arrangements has been taken, an additional purpose can become an additional main purpose of the arrangements. Whether this is the case will be a question of fact, depending on the individual case. The question is whether a purpose is one of the main purposes, not whether it is the most important purpose, and not whether the arrangements would be proceeded with in the absence of any of the other purposes.

If an interest in land is subject to two separate transactions on a single day (for instance, if it is sold by A to B, then subsequently sold the same day by B to C in a separate transaction), then the first of the transactions will have occurred “within the period of three years immediately preceding the effective date of the transaction” of the second transaction, for purposes of s 54(4)(b) FA 2003. This will be so, even if the first transaction precedes the second by only minutes, or even seconds. Although the legislation speaks of an “effective date of the transaction” rather than of an “effective time of the transaction”, all transactions in fact take place at a specific point in time.

Statutory provisions may lead to exceptions to or modifications of this general principle in specific situations.

By virtue of s 51(4)(b) FA 2003, the Case 3 exception to the deemed market value rule will not apply if a group relief claim was in fact made in respect of a relevant prior transaction (see s 62(3) FA 2003), whether or not the company making that claim was entitled to the group relief claimed.

This follows from the wording of the provision. Section 54(4) FA 2003 refers to a prior transaction “in respect of which group relief was claimed by the vendor”. It refers to group relief having been claimed by the vendor. It does not refer to group relief having been validly claimed by the vendor, a qualification that could easily have been added to the wording of the legislation if this had been intended.

At the time that a land transaction return is filed, it will be a relatively simple matter to determine whether a group relief claim was made in respect of a relevant prior transaction in the previous three years. In practice, that can be expected to be a workable criterion to be applied by a person subsequently seeking to rely on the Case 3 exception, at the time that they are required to complete and file their land transaction return.

On the other hand, at the time that such a person is required to complete and file their land transaction return, it may be difficult or impossible for them to determine whether any earlier group relief claim was validly made. That person may not know the full circumstances of the earlier transaction in respect of which the group relief claim was made. Indeed, there may be a pending dispute about whether the earlier group relief claim was validly made, if for instance an HMRC enquiry into that claim is still open, or if an appeal against an HMRC decision following such an enquiry is still in progress.

Reading the word “validly” into the final words of s 54(4) FA 2003 thus has the potential to render the operation of the Case 3 exception impracticable.

If the final words of s 54(4) FA 2003 are read as referring to both valid and invalid group relief claims, the effect in practice is as follows. If a company acquiring a chargeable interest makes a group relief claim that it is not entitled to make, and then transfers that interest to another by way of a distribution of the company’s assets, the latter will not be entitled to rely on the Case 3 exception to the deemed market value rule, irrespective of whether or not the company knew at the time that it made the group relief claim that it was not entitled to do so, and whether or not it ultimately took the benefit of the claimed group relief (for instance, because the group relief claim was ultimately disallowed following an HMRC enquiry). Precluding reliance on the Case 3 exception in all such circumstances is not so inherently inequitable as to require a conclusion that Parliament could not possibly have intended this.

This interpretation would also would mean that where there was a valid entitlement to group relief in respect of a relevant prior transaction, but no group relief claim was in fact made, s 54(4)(b) FA 2003 will not operate to prevent reliance on the Case 3 exception. This again is because this provision operates solely according to whether or not a group relief claim was in fact made , not whether a group relief claim was entitled to be made .

The above interpretation is consistent with the plain wording of s 54(4)(b) FA 2003. The Tribunal is satisfied that nothing in the wording of this provision requires a different conclusion.

Section 45 FA 2003 does not apply to the circumstances of the grant of the Lease by SGSL to B64, followed by the transfer of the Lease from B64 to the Appellant.

As to s 45(1)(a) FA 2003, the circumstance described in this provision did exist. The agreement for lease entered into by SGSL with B64 on 5 June 2011 was a “contract” as defined in s 44(10) FA 2003, and the Lease in respect of the Tower granted by SGSL to B64 the same day was an “instrument” as defined in the same provision. This agreement for lease entered into by SGSL and B64 was a contract for a land transaction, and this land transaction was completed by the grant of the Lease by SGSL to B64.

However, as to s 45(1)(b) FA 2003, the circumstance described in this provision did not exist.

As s 45 FA 2003 does not apply, the transaction on which SDLT is potentially chargeable is the transfer of the Lease from B64 to the Appellant.

Paragraph 2(4A) Schedule 7 FA 2003 prevents the Appellant from claiming group relief on its acquisition of the Lease from B64.

As to paragraph 2(4A)(a) Schedule 7 FA 2003, the Tribunal has found that the transfer of the Lease to the Appellant was effected for bona fide commercial reasons, and this was not disputed by HMRC.

However, as to paragraph 2(4A)(b) Schedule 7 FA 2003, the transfer of the Lease from B64 to the Appellant formed part of arrangements of which one of the main purposes was avoidance of liability to tax.

By virtue of s 53(1A) FA 2003, the chargeable consideration for the acquisition of the Lease by the Appellant is to be taken to be not less than the market value of the Lease as at 5 July 2011, the effective date of the transaction.

Section 53 FA 2003 applies in this case. It is undisputed that the purchaser, the Appellant, is a company, and that the vendor, B64, is “connected” to the Appellant for purposes of s 53(1)(a) and (2) FA 2003.

None of the exceptions in s 54 FA 2003 apply.

In view of this conclusion, there is no need to determine whether the sale of the Lease by B64 to the Appellant at book value (that is to say, at an under-value) was a “distribution of the assets of that company” for purposes of s 54(4)(a) FA 2003.

Section 75A FA 2003 does not apply, because the requirement in s 75A(1)(c) is not satisfied.

It follows from the findings above that the Appellant is chargeable to SDLT on its acquisition of the Lease from B64, based on the market value of the Lease on the effective date of the transaction. No greater amount of SDLT would have been payable on a notional transfer of the Lease directly from SGSL to the Appellant.