Michael Brown & Anor v The Commissioners for His Majesty’s Revenue and Customs

At [36] to [44] the FTT considered whether s 45 FA 2003 applied to the arrangements. It concluded that the provision did apply on the following basis:

At [45] the FTT held that as a result of the application of s 45 (3) the land transaction which was relevant for the purposes of SDLT consisted of the “secondary contract” referred to in that provision, in this case the notional contract between the Company and Mr and Mrs Brown which was completed by the transfer executed by the Company.

The FTT then considered the question as to what was the “consideration for the transaction” for the purposes of s 45 (3)(b) and whether it arose under s 45 (3) (b) (i) or (b)(ii).

At [60] the FTT held that the consideration provided by Mr and Mrs Brown (that is the subscription monies for the shares in the Company) was not “consideration given” by them for the purposes of s 45(3)(b)(i) because it was not given by them as consideration under the contract between the vendor and the Company. The FTT said:

“That is the case even though paragraph (b)(i) refers to consideration given directly or indirectly by C. What is given by C must be "consideration" for the property whether it is given directly or indirectly.”

The FTT went on to say at [61]:

“On this basis, subject to what follows, the consideration for the notional, ‘secondary’, contract in the instant appeal comprises whatever was given for the transfer of rights under (b)(ii) and nothing under (b)(i) because Mr and Mrs B gave no consideration under the A-B contract.”

However, the FTT expressed the view that s 45(3)(b)(i) could apply on the basis that the consideration was given to the vendor by a person connected with Mr and Mrs Brown, namely the Company. It said this at [64]:

“In the instant appeal the company (B) was connected with Mr and Mrs Brown (C) so that the consideration given by it under its purchase contract would, on a literal reading, fall within (3)(b)(i) as consideration given by a connected person. Thus, if I am correct I [sic] my approach to (3)(b)(i) consideration of £955,000 would arise under the connected party limb of (3)(b)(i) in addition to any arising under (3)(b)(ii).”

Nevertheless, the FTT declined to decide the consideration issue on that basis, noting at [65] that HMRC did not wish to put their case on the basis of connection.

Therefore, the FTT went on to consider interpretation of the phrase “the consideration given for the transfer of rights” in s 45 (3) (b) (ii), noting at [66] that HMRC put its case on the basis of the consideration for the notional contract was under (b) (i) alone and that no consideration arose under (b) (ii). The FTT held that there was consideration that fell within the scope of (b) (ii). Its reasoning was set out at [68] to [72] as follows:

“68.

I find it difficult to reconcile [HMRC’s] submission that, viewed realistically, the contribution paid by the Appellants was consideration given (indirectly) for the property within (b)(i) with his acceptance that it was not (realistically) consideration given for the resolution for the distribution of the property on the reduction of capital. I accept that (b)(ii) refers only to consideration given rather than to consideration "directly or indirectly" given, but in the context of a preplanned scheme if one asks why Mr and Mrs Brown paid £960,000 to the company, the sensible, realistic answer must be "to get the house" pursuant to the planned arrangement with the company. They may also have paid it to get the shares, but the question is what they paid "for", and that word looks to the reality of the purpose of those who paid it.

69.

[Counsel for Mr and Mrs Brown] says that a distribution on a reduction in capital is a gratuitous transaction as a matter of company law, but the reference to the "transfer of rights" in section 45(1) is not of necessity to the actual conveyance but to the transaction which results in the person being entitled to call for a conveyance. The actual distribution may have been for no consideration but the resolution to make it followed from the share subscription, and would not have been possible without the share subscription:  realistically the payment for the shares was also the quid pro quo for that resolution.

70.

[Counsel for Mr and Mrs Brown] says that in the context of legislation designed to apply objective tests the application of a motive or intention test such as that inherent in treating preplanned transactions as satisfying a statutory concept when the individual transactions would not is inappropriate. I agree that the legislation generally appears to seek to apply objective tests. But the use of the word "for" in (3)(b) is to my mind an exception.

71.

I therefore find that the consideration for the land transaction which resulted on the completion of the notional or secondary contract was the amount paid or to be paid on the issue of the shares being the amount under (3)(b)(ii) given by Mr and Mrs Brown in consideration for the resolution to reduce the company's share capital and convey the house.

72.

That amount was £960,002, not £955,000. There is to my mind, no anomaly in that conclusion: if on a subsale C pays B £960,002 and B pays A £955,000 the object of section 45 is to tax C on an acquisition for £960,002.”

The FTT set out the legislative scheme around s 75A FA 2003, which is designed to prevent avoidance of SDLT. In brief, when the conditions of s 75A are satisfied, the actual chargeable land transactions are ignored for SDLT purposes, and a new “notional transaction” with a defined consideration is put in their place.

At [98] to [101] the FTT concluded that if it were correct in concluding that s 45(3) FA 2003 applied then if the consideration under s 45 (3) (b) FA 2003 were less than £955,000 then all the scheme transactions are ignored and Mr and Mrs Brown are chargeable under s75A on a notional transaction with consideration of £955,000.

However, the FTT concluded that any liability arising under section 75A FA 2003 was not the subject of or capable of being included within the Determination. The FTT’s reasoning was set out at [109] to [124] and can be summarised as follows:

Mr and Mrs Brown were granted permission to appeal on the following two grounds:

In their Response to the Notice of Appeal HMRC oppose the appeal in respect of both grounds advanced. They contend:

In addition, HMRC seek to uphold the FTT’s decision that there is consideration under s 45(3)(b) for two alternative reasons as follows:

There is no challenge to the FTT’s conclusion that s 45 FA 2003 applies in this case. Neither is there any challenge to the FTT’s analysis as to the applicability of s 75A FA 2003. However, if s 75A applies then HMRC challenge the FTT’s conclusion that the Determination was not capable of imposing liability in relation to any liability that arose under s 75A.

Accordingly, there are three overall issues that we need to determine as follows:

It was common ground that the purchase of the Property by Mr and Mrs Brown resulted from the implementation by them of a tax avoidance scheme involving a number of pre-ordained steps as described at [2] above. As we set out at [21 (5)] above, those steps were taken in pursuance of a plan described to Mr and Mrs Brown by the promoters of the scheme and from the time that the Company contracted to purchase the Property, there was no practical likelihood that the remaining steps would not be taken. In other words, by deciding to adopt the scheme Mr and Mrs Brown decided to achieve the objective of acquiring the Property through the implementation of the steps set out in the description of the scheme.

In those circumstances, as the case law demonstrates, the application of s 45 (3) (b) to the various steps necessary to implement the scheme is to be ascertained by following the modern purposive approach to the interpretation of all legislation. The general principles to be applied in approaching the construction of both taxing statutes and legislation more generally was most recently set out by Lord Briggs and Lord Leggatt JJSC in the judgment of the Supreme Court in Rossendale Borough Council v Hurstwood Properties (A) Ltd [2021] 2 WLR 1125 (“Hurstwood”) at [10] to [18]. In summary:

The essence of Mr and Mrs Brown’s case, as submitted by Mr Birkbeck, can be summarised as follows:

In our view the proper construction of s 45 (3) in the context of the scheme of the legislation as a whole leads to the conclusion that in this case SDLT is chargeable in respect of the secondary contract that is deemed to occur by the operation of s 45 (3) and the chargeable consideration for that transaction is £955,000. In our view, that consideration arises under s 45 (3) (b) (i) FA 2003. That is because the sum is such consideration under the original contract between the vendor and the Company as is referable to the subject matter of the secondary contract which is provided indirectly by Mr and Mrs Brown. Contrary to the findings of the FTT, we find that no chargeable consideration arose under s 45 (3) (b) (ii).

We now set out our reasons for that conclusion.

In our view, the purpose of the FA 2003 is to charge SDLT on any transaction which is the acquisition of a chargeable interest, which includes the acquisition of a freehold title to a house. That follows from s 43 (1) which provides that a “land transaction” is “any acquisition” of a chargeable interest. In order for SDLT to be payable there must be “chargeable consideration” for the land transaction in question which, as provided by paragraph 1 of Schedule 4, must be “any consideration in money or money’s worth given for the subject matter of the transaction, directly or indirectly, by the purchaser or a person connected with him.”

Therefore, a key question is whether the term “consideration” as used in this context is limited, as Mr Birbeck submits, to consideration provided under a contract.

In our view, the legislation is not to be read as limited in that way. Mr Elliott drew our attention to the Explanatory Notes to the Finance Act 2003 which stated that a main driver for reform of stamp duty on property transactions was the increased use of avoidance devices to mitigate the charge to stamp duty and that the new legislation was designed to ensure all purchasers of property pay their fair share of tax. Against that background, it is unlikely that Parliament wished to restrict the charge to SDLT to property acquisitions where the value provided for the acquisition arose under the terms of a contract.

Indeed, it is clear from the legislation that acquisitions which do not result from the performance and completion of a binding and enforceable contract but in respect of which value in money or money’s worth is provided by the purchaser attract SDLT. It is not necessary for there to be an antecedent contract for there to be chargeable consideration for a land transaction. For example, A orally promises to transfer Property X to B and effect that transfer to B on the understanding that in return B transfers Property Y to A. Those two transactions are completed by the execution of two separate conveyances. In these circumstances, it is clearly the case that B has given value in order to get something of value in return. In this situation, paragraph 5 of Schedule 4 FA 2003 applies to determine the chargeable consideration. That provision applies where one or more land transactions are entered into by a purchaser “in consideration of one or more land transactions being entered into by him… as vendor” and the chargeable consideration is calculated by reference to the market value of the relevant properties.

It is to be noted that references to the terms “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: see s 43 (4). Again, there is no reference to the purchaser or vendor, as the case may be, having to be party to a contract of sale.

There are, of course, references to contracts of sale in s 44 and s 45, but those sections are only dealing with situations where there is a contract for a land transaction under which the transaction is to be completed by a conveyance. Section 44 does not provide that there must be a contract that precedes a conveyance for a charge to SDLT to arise. Likewise, s 45 only applies where there is a contract for a land transaction which is to be completed by a conveyance and which is followed by an “assignment, sub-sale or other transaction” relating to the whole or part of the subject matter of the original contract. Again, this provision does not restrict the operation of s 45 (3) (b) to circumstances where the consideration under the transaction is provided under a contract. What the provision does is to deem the sub-sale or other transaction to be a “secondary contract” whether or not the transaction is entered into pursuant to a contract and, in effect, to provide relief from SDLT in relation to the conveyance of the property pursuant to the original contract where the secondary contract is completed at the same time as the original contract. Consequently, it is clear that the term “consideration” is not to be restricted to value provided by a purchaser pursuant to a contract.

Indeed, were it not for the application of s 45 in this case, in common with the FTT, we would have considered that, notwithstanding the interposition of the Company between the vendor of the Property of Mr and Mrs Brown, that it was Mr and Mrs Brown who provided the whole of the consideration for the acquisition of the Property and that SDLT would be chargeable by reference to that consideration. Given the preordained nature of the steps in the transaction, the share capital contribution by Mr and Mrs Brown was consideration given indirectly for the Property and therefore consideration for the purposes of paragraph 1 of Schedule 4 FA 2003. As we have said, that provision defines “chargeable consideration” as any consideration in money or money’s worth given for the subject matter of the transaction directly or indirectly by the purchaser or a person connected with him.

The reason that the consideration was given directly or indirectly by the purchaser for the purposes of paragraph 1 of Schedule 4 was that the interposition of the Company between the vendor of the Property and Mr and Mrs Brown was a step in a preordained scheme that served no commercial purpose. The Company’s sole purpose was to enable Mr and Mrs Brown to avoid SDLT on the acquisition of the Property. As found by the FTT [26], the subscription monies paid by Mr and Mrs Brown to the Company were given under a scheme in which plainly the “deal” was that these monies were the quid pro quo for the Property. The Company existed only for a short period of time and undertook no commercial activities. Applying the purpose of paragraph 1 of Schedule 4, which is to seek to tax the value of what the purchaser has had to provide in order to obtain the Property, the interposition of the Company between the vendor of the Property and Mr and Mrs Brown is to be disregarded. Viewed realistically, taking the steps in the scheme as a whole, the transaction resulted in Mr and Mrs Brown, who provided the funds to the Company, acquiring the Property in return for the value that they provided, albeit that value was provided indirectly through their subscription for the shares in the Company.

However, the case was argued before us on the basis that the parties agreed that s 45 did apply. We must therefore proceed on the basis that the interposition of the Company is not to be disregarded and that there was a contract between the vendor of the Property and the Company (the original contract) and a secondary contract between the Company and Mr and Mrs Brown which resulted in the transfer of the Property to them through the distribution in specie.

In the context of a preordained scheme under which Mr and Mrs Brown provided funds to the Company which were used by the Company to purchase the Property from the vendor, it is our view that the funds provided by Mr and Mrs Brown constituted consideration under the original contract given “indirectly” by Mr and Mrs Brown and therefore fell within the scope of s 45 (3) (b) (i). That was the conclusion reached in Vardy in respect of a similar scheme and we agree with it. In that case the FTT said at [98] to [100]:

“[98] … A pre-ordained scheme has been established in which C, at an early stage, provides the cash to B which will ultimately be used by B to pay A for the purchase of the property. In those circumstances, we are satisfied that when, as a result of a later step in the scheme, there is a transfer of rights which ultimately entitles C to call for a conveyance of the property, it can be said that A's purchase price, though it will be received from B, is “to be given indirectly” by C within the meaning of section 45(3)(b)(i).

[99] We recognise that the £7.4 million in this case was subscribed by VPT for shares in VP, but we consider that does not prevent it (or the relevant part of it) from being regarded as also indirectly given as consideration for the purchase of the Property. This is not, as [Counsel for the taxpayer] asserted, a “reattribution” of consideration from one thing to another; it is a recognition that the direct payment of consideration for an immediate purpose may also amount to the indirect provision of consideration for another.

[100] It follows therefore that we consider the entire £7.25 million purchase price paid by VP and funded by VPT is to be regarded as consideration for the secondary contract arising under section 45(3)(b)(i)…”

Applying this analysis in the present case, the consideration given indirectly under s 45 (3) (b) (i) is £955,000, that is the purchase price payable under the original contract.

Mr Birkbeck submitted that this result might lead to double taxation in that the same consideration could be taken into account under both s 45 (3) (b) (i) and (b) (ii). We do not consider that to be the case. It is clear that the purpose of s 45 is to ensure that in a genuine sub-sale, where B has agreed to purchase a property from A and subsequently agrees to sell the property to C with the transactions being completed at the same time, there will be no double counting. That is apparent from the following simple example that Mr Elliott gave in his skeleton argument:

We agree with Mr Elliott that any argument that C has indirectly given consideration under the original contract does not result in the total consideration being increased because there is a direct overlap between that consideration and the consideration given for the transfer of rights, which precludes double counting.

In other words, in our view it is clear that as a matter of construction, s 45 (3) operates so as to aggregate the amount paid by C to satisfy B’s original contract and the amount paid by C to B. There is no scope to take into account the amount B has contracted to pay A under the original contract as well.

Applying this analysis to the present case, all of the consideration payable in respect of the transaction arises under s 45 (3) (b) (i). There is nothing extra to bring into account under s 45 (3) (b) (ii) as no further consideration is given for the transfer of rights under the secondary contract. Accordingly, the chargeable consideration in this case is £955,000, the amount payable under the original contract which represents the value provided by Mr and Mrs Brown indirectly, via their subscription for shares in the Company, to acquire the Property.

As the FTT said in Vardy at [87] and [88], when fixing the consideration to be attributed to the secondary contract, which as we have found, can be a transaction which is not a contract, the provision simply requires the aggregation of the consideration given by C (not necessarily to B) for the right to acquire the property and the consideration given by C (not necessarily to A) for the property itself. It is inherent in that dichotomy that any consideration given by C can only be attributed to one or the other of the two limbs of s 45 (3) (b), that is there can be no double counting of the same consideration as attributable to both the right to acquire the property and the conveyance of the property itself. To the extent that any amount is brought into account under s 45 (3) (b) (i) the same amount cannot be brought into account under s 45 (3) (b) (ii).

Neither do we accept Mr Birkbeck’s submission, and disagreeing with the FTT in this respect, that in order for it to be said that C has provided the consideration under the contract between A and B, C must be making the payment with his own money. We see no reason to construe the words “given… by the transferee” in s 45 (3) narrowly. Construing the provision purposively, realistically the consideration in this case was given by Mr and Mrs Brown because the Company was a vehicle under their control and its only purpose and business was to implement the scheme and enable Mr Mrs Brown to acquire the Property. Accordingly, the funds that were paid by the Company to the vendor of the Property were provided by Mr and Mrs Brown through their subscription for shares in the Company, the sole purpose of which was to enable the Company to be put in funds to satisfy the purchase price for the Property. That is quite different to the normal situation where a bank or other finance provider advances funds to enable the purchaser to fund the acquisition of a property where there is no preordained scheme of the kind with which we are concerned in this case.

Neither do we consider that the Supreme Court’s judgment in Project Blue casts any doubt on the analysis in Vardy.

Project Blue concerned the following transaction:

HMRC opened enquiries into the SDLT returns submitted in respect of these transactions. In relation to PBL’s return, HMRC concluded the enquiry by amending the return from nil to £38.36 million on the basis that that was the SDLT due if the sale by the MOD to PBL was chargeable. They later amended this to £50 million on the basis that the amount paid by MAR to PBL was the relevant chargeable sum.

Most of the argument focused on the interaction of section 71A, which it was claimed relieved the purchase by MAR from SDLT, taken together with section 45.

The conclusion was that if the sub-sale was not chargeable, then s 45(3) relieved the purchase of liability even if the sub-sale was the means of funding the purchase. Lord Hodge in his judgment recognised that this was a “lacuna” that would (absent section 75A) result in “an unintended tax holiday” but accepted that the result was clear enough to be the correct one nonetheless. The following passages from Lord Hodge’s judgment are relevant:

“[18] Because the arrangements for financing the purchase of the barracks involved PBL completing its purchase and its sale of the barracks to MAR on the same day in a connected transaction, PBL, as I have said, claimed sub-sale relief under section 45(3). Because MAR had purchased the barracks from PBL in the context of an Ijara arrangement, it claimed exemption under section 71A(2) for that purchase and a claim was also submitted on behalf of PBL for exemption under section 71A(3) for the lease to PBL.

…

[35] I therefore conclude that, but for section 75A, the combination of the operation of sub-sale relief under section 45(2)(3) and the exemption under section 71A(2) relieved the sale by the MoD to PBL and exempted the sale by PBL to MAR from a charge to SDLT.”

Mr Birkbeck submits that the Supreme Court did not conclude that the correct analysis was that, because MAR provided the funding for the original contract falling within s 45, that amount was treated as consideration under s 45(3)(b)(i) and that the Court’s conclusion was inconsistent with that proposition.

However, it seems to us, as submitted by Mr Elliott, that no charge to SDLT arose in that case because of the application of two separate reliefs. The consequence of the tailpiece of s 45 (3) was that the completion of the contract between the MoD and PBL for the purchase of the Barracks was disregarded. The sale by PBL to MAR did not attract SDLT because of the exemption for Ijara arrangements provided for by s 71A (2). Had that exemption not been available then MAR would have been liable for SDLT on the completion of the secondary contract between PBL and MAR.

It is therefore clear that the Supreme Court did not consider, and indeed did not need to consider, whether any consideration arose under s 45 (3) (b). There is nothing in Lord Hodge’s analysis which touches on whether absent the availability of exemption in s 71A no consideration would fall within the scope of s 45 (3) (b) in respect of the secondary contract on the basis that no consideration was given by MAR for the purposes of s 45 (3) (b) (i).

Because all of the consideration in respect of which SDLT is payable arises under s 45 (3) (b) (i), for reasons different to those advanced by Mr Birkbeck in this case, it follows that there is no consideration to be brought into account under s 45 (b) (ii). Consequently, the FTT erred in finding to the contrary. All the consideration for the secondary contract arises under s 45 (3) (b) (i), and consists of the funds provided by Mr and Mrs Brown to the Company to enable it to complete the original contract.

Therefore, we conclude that in this case on the application of s 45 (3) (b) the chargeable consideration in respect of the secondary contract which arises pursuant to the terms of that provision is £955,000, being the amount of the consideration under the original contract which is referable to the subject matter of the secondary contract and which has been provided indirectly by Mr and Mrs Brown through their subscription for shares in the Company.

We have come to this conclusion without needing to consider HMRC’s other alternative argument, namely the Connected Person Argument, as summarised at [38] above. Mr and Mrs Brown object to HMRC attempting to raise the Connected Person Argument in this appeal in circumstances where they had taken a considered policy decision not to run the argument before the FTT. Although the point is a pure point of law and we have the discretion to permit HMRC to raise the argument provided we are satisfied that there will be no prejudice in doing so to Mr and Mrs Brown, as it is not necessary for us to deal with the point in coming to our conclusion on the application of s 45 (3) (b) (i) we decline to do so.

It follows from our conclusion on Issue 1 that Issue 2 strictly speaking does not arise. However, we will deal briefly with Mr Birkbeck’s submissions to the effect that the FTT had acted unfairly by deciding the case on a point that had not been pleaded nor (as a result properly argued or evidenced).

As Mr Elliott submitted, the jurisdiction of the FTT is defined by the nature of the decision before it and its statutory powers in relation to that decision. In the present case, the matter before the FTT was the Determination and its jurisdiction included the power to uphold that decision. As was confirmed in Tower MCashback LLP 1 v Revenue and Customs Commissioners [2008] EWHC 2387 (Ch) (per Henderson J (as he then was)) in relation to similar powers in respect of closure notices in direct tax cases, in determining an appeal, the FTT is entitled to consider arguments raised on its own initiative. This was approved by Lord Walker in the Supreme Court in that case ([2011] UKSC 19; [2011] 2 A.C. where he said at [15]:

“He [Henderson J] also observed (again, in my view, entirely correctly), at paras 115–116:

“115…There is a venerable principle of tax law to the general effect that there is a public interest in taxpayers paying the correct amount of tax, and it is one of the duties of the commissioners in exercise of their statutory functions to have regard to that public interest… For present purposes, however, it is enough to say that the principle still has at least some residual vitality in the context of section 50, and if the commissioners are to fulfil their statutory duty under that section they must in my judgment be free in principle to entertain legal arguments which played no part in reaching the conclusions set out in the closure notice. Subject always to the requirements of fairness and proper case management, such fresh arguments may be advanced by either side, or may be introduced by the commissioners on their own initiative.””

In terms of fairness to Mr and Mrs Brown, they have had the opportunity of arguing the merits of the proposition that there was chargeable consideration under s 45(3)(b)(ii) before us. Insofar as there may have been an error of law on the part of the FTT in deciding the case on that basis without giving Mr and Mrs Brown the opportunity of making submissions on the point, that error will in effect have been cured by the point being fully argued before this Tribunal. That is, of course, subject to there having been no prejudice to Mr and Mrs Brown, for example, as a result of them not having had the opportunity of adducing further evidence that would support their case.

Mr Birkbeck submitted that for s 45(3)(b)(ii) to have applied there would have to be an overarching contract under which it was agreed that all the steps in the scheme, including the distribution of the Property in specie to Mr and Mrs Brown, would be implemented. If such a contract had been alleged, it would have been disputed and that dispute would have involved addressing the factual position regarding Mr and Mrs Brown’s intentions and agreement with regard to the Property. Mr Birkbeck submitted that the FTT would have had to consider whether there was a common intention that the subscription for shares in the Company gave rise to a contractual right to call for a conveyance. Without hearing evidence on that point, the FTT would have imposed that intention on Mr and Mrs Brown.

In our view there would have been no injustice to Mr and Mrs Brown had it been necessary to consider in this appeal whether s 45 (3) (b) (ii) applied. The FTT found that there was a preordained scheme involving a series of steps and that there was no practical likelihood that all steps in the scheme would not be taken. As was made clear in Hurstwood, where a scheme aimed at avoiding tax involves a series of steps planned in advance, it is both permissible and necessary not just to consider the particular steps individually but to consider the scheme as a whole. That does not involve identifying whether or not there was an overarching contract to implement the scheme. Furthermore, as we have concluded at [51] above, there is no need for there to be an antecedent contract in order that “chargeable consideration” can arise that is subject to SDLT.

Accordingly, the question of whether there was evidence that Mr and Mrs Brown intended to enter into an overarching contract to implement the scheme is irrelevant. The only finding that the FTT needed to make was whether there was a plan to implement the scheme and whether Mr and Mrs Brown intended to carry it out. As we have indicated above, the FTT made those findings. We therefore do not consider that the case would have been conducted differently or different evidence would have been provided had HMRC pleaded reliance on s 45 (3) (b) (ii). Whether the case was being argued on the basis that s 45 (3) (b) (i) or s 45 (3) (b) (ii) applied, the evidence that Mr and Mrs Brown had agreed to implement a preordained scheme was the same and, as Mr Elliott submitted, it would be fanciful to say that any different evidence of intention would have been adduced had they been facing a case that s 45 (3) (b) (ii) applied rather than s 45 (3) (b) (i). Mr and Mrs Brown knew they were facing the Vardy Argument which presupposed a preordained scheme under which subscription monies were paid to satisfy the consideration payable under the original contract.

As with Issue 2, It follows from our conclusion on Issue 1 that Issue 3 strictly speaking does not arise. However, we will deal briefly with the parties’ submissions on this Issue.

Mr Birkbeck adopted the reasoning of the FTT on this issue, as summarised at [35] above. He submitted that the notional transaction that arises as a result of the application of s 75A is a separate transaction from the actual transaction that took place. In particular:

As found by the FTT at [118], HMRC’s letter enclosing the Determination concluded that Mr and Mrs Brown’s acquisition of the house was a chargeable transaction. The Determination specified the amount of SDLT HMRC considered was payable by reference to the consideration which they considered had passed, namely £955,000. Neither the letter nor the Determination specified the basis on which HMRC had calculated the amount payable.

In our view, the letter and the Determination taken together, met the requirements of paragraph 25 of Schedule 10 FA 2003. That is the case whether the SDLT was ultimately held to be chargeable by the application of s 45 (3) or whether it was chargeable by reference to a notional transaction arising as a result of the application of s 75A. Therefore, had it been relevant, the Determination would have been sufficient to impose any liability to SDLT that arose under s 75A.

Our reasons for that conclusion are as follows.

Paragraph 25 of Schedule 10 enables HMRC to make a determination of the SDLT payable in the case of a “chargeable transaction” in respect of which no land transaction return had been given. We agree with Mr Elliott that in this case the “chargeable transaction” was the acquisition by Mr and Mrs Brown of the Property. As we have said, a “chargeable transaction” is a “land transaction” that is not exempt and the definition of a “land transaction” under s 43 (1) is the “acquisition of a chargeable interest”. Therefore, in this case in the Determination, HMRC decided that SDLT was payable in respect of Mr and Mrs Brown’s acquisition of the chargeable interest, namely the Property. In our view, there is no requirement to specify whether the acquisition has resulted in SDLT being payable as a result of the application of s 45 (3) or by reference to a notional transaction which is arises as a result of the operation of s 75A. Whether or not the liability to SDLT arises by reference to an actual transaction or a notional transaction there is still only one transaction, namely the chargeable transaction which is the acquisition of the Property.

As the FTT found, it was only later after provision of further information and documents by Mr and Mrs Brown that HMRC expressed the view that SDLT was payable because the distribution in specie was chargeable as a result of the application of s 45 (3) (b) and sometime later that there was a possibility that s 75A applied. We therefore consider that the FTT was wrong to conclude at [124] that the Determination had been made in relation to the actual transfer to Mr and Mrs Brown and not a notional transfer under s 75A, and that the Determination related only to that actual transfer. As is clear from the terms of the Determination and its covering letter, the Determination had been made purely on the basis of a chargeable transaction having taken place for a consideration of £955,000. As we have said, that was all the Determination was required to do. As Mr Elliott submitted, it is difficult to see how HMRC could have provided any further reasoning at that stage in the absence of the further information that was subsequently provided.

We do not accept that in this case the determination gave Mr and Mrs Brown insufficient information to enable them to consider their options, namely the filing of a return or the making of an appeal. They knew from the Determination that HMRC were challenging Mr and Mrs Brown’s conclusion that no chargeable consideration arose in respect of the acquisition of the Property. They had all the information they needed to challenge that conclusion by making their arguments as to how s 45 (3) applied to the various transactions effected pursuant to the scheme.

This conclusion is consistent with the Supreme Court judgment in Project Blue where PBL filed a land transaction return in relation to its actual acquisition of the property and claimed relief under s 45 (3). HMRC opened an enquiry into the return and amended the return to impose SDLT on a notional transaction under s 75A. The Court rejected an argument that HMRC could not amend the return to impose liability in respect of the notional transaction arising under s 75A when the return had been submitted in relation to the actual transaction. The Court held at [83] that the return was provided to HMRC in relation to a transaction, namely the sale from the MoD to PBL and HMRC were entitled enquire into the tax consequences of that sale and, following the completion of their enquiries, to issue a closure notice making the amendments to the return which were required to give effect to their conclusions.

It is therefore clear, as Mr Elliott submitted, that the Supreme Court did not follow the narrow approach taken by the FTT in this case which would be to say that the only chargeable transaction in respect of which the return had been filed was the actual transaction and not the s75A notional transaction. Instead, it held that the closure notice could impose liability in respect of the notional transaction (as well as the actual transaction) because the subject of the return was the sale (i.e., acquisition) of the property by PBL. As Mr Elliott submitted, this approach is consistent with identifying the land transaction which is the subject of the relevant return, assessment, or determination by reference to the broad definition in s 43(1), being the acquisition of the chargeable interest (regardless of whether that acquisition is treated as being pursuant to an actual transaction or a notional transaction).

For the reasons set out above, we are satisfied that the FTT made an error of law in concluding that Mr and Mrs Brown were liable to pay SDLT in respect of their acquisition of the Property by reference to consideration of £960,002 as a result of the application of s 45(3)(b)(ii) FA 2003. In exercise of our powers under section 12 of the Tribunals, Courts, and Enforcement Act 2007, we set aside that conclusion and remake the Decision by finding that Mr and Mrs Brown are liable to pay SDLT in respect of their acquisition of the Property by reference to consideration of £955,000 as a result of the application of s 45(3)(b)(i) FA 2003.

The appeal is dismissed.