Stuart Fox v The Commissioners for His Majesty’s Revenue and Customs

Mr Fox primarily focused on maintaining that at the time all monies in bank accounts, even when in an account in the name of just one of him and Mrs Fox, were in reality jointly held funds. He submitted that this meant that there was no valid second contract entered into between him and Mrs Fox because there was no consideration.

Mr Fox relied on the case of Currie v Misa (1874) LR 10 Ex 153 to submit that in order for consideration to be found in relation to the Second Contract, Mr Fox would have to be worse off and his wife better off. This was not the case in the situation where he and his wife viewed all funds as being held jointly. He submitted that the case of Pflum v HMRC [2012] UKFTT 365 (TC), which held that monies held in a joint account funded entirely by one of the holders of the account which were withdrawn solely by the other holder were to be regarded as belonging solely to the person who had withdrawn the funds should be distinguished because he had not funded a bank account with his own money which his wife could then access. Instead, this was a case of funds having been jointly held for 20 years. However, he recognised that the First Direct account set up in his name on 18 February 2006 for the purpose of the Scheme had been found by the FTT to be in his sole name and the funds in it had been found to be held by him solely even though it was funded from an offset mortgage jointly held with his wife. He did not challenge that finding or the finding that £10,000 from the £12,000 in that account was paid by him to his wife for the sale of the Property.

However, Mr Fox submitted that the £10,000 was paid to an Abbey National account which, in practice, held jointly owned funds even though the account was in Mrs Fox’s name alone. He confirmed that Mrs Fox was the sole signatory on that account and that she could spend the money as she wished, although he maintained that the couple had viewed the funds as joint funds at that time. Mr Fox submitted that the finding of the FTT that the Abbey National account was in Mrs Fox’s sole name should therefore be read in the context of the FTT also stating that “substantially all, if not all, of Mr and Mrs Fox’s financial transactions were usually in jointly held accounts and their assets were for the most part usually held jointly”.

Mr Fox maintained that therefore the Abbey National account represented funds which were jointly owned. The £10,000 paid to that account by him then passed to the joint current account and were used to repay the offset mortgage drawdown. In other words, the monies had simply moved in a circle. As a result, Mr Fox submitted that there was no consideration for the Second Contract. Consequently, under the Standard Conditions of Sale the vendor had no obligation to convey the Property and the TR1 was not valid. In reality, Mrs Fox was the real owner of the Property and she held it at the time as trustee for Mr Fox. Alternatively, later in the hearing Mr Fox recognised that it may be said that the TR1 transferred the Property to him, but he submitted the question was then whether he had the right to call for the conveyance or his wife had simply chosen to transfer the Property to him.

Mr Ripley submitted that section 45(1)(b) is not limited on its face to transactions which are contracts or sub-sales. However, in this case there was a valid secondary contract. There was consideration in the Currie sense in Mr Fox’s promise to pay, as found by the FTT. Even if it were considered that the purchaser of the Property had only a contingent right to the conveyance of the Property dependent on payment that was sufficient to qualify as being “entitled to call for a conveyance to him”. Mr Fox submitted that the contingency would not prevent “entitlement”.

Mr Ripley relied upon the case of Pflum to maintain that even if the couple regarded funds in bank accounts in sole names as jointly held, the person withdrawing or using the funds was solely entitled to them. Moreover, Mr Fox had accepted that £10,000 was paid from an account in his sole name and to which he was solely entitled. The payment was ultimately made to the Abbey National account in Mrs Fox’s name which was not a joint account legally. The Abbey National account to which the monies were transferred was confirmed as an account solely in her name by Abbey National.

There was no circularity as Mr Fox had suggested. The FTT had addressed the movements of the monies and did not consider circularity to exist. It was several months after the payment to the Abbey National account that the monies were then used to repay the offset mortgage drawdown. The FTT’s statement that the couple’s monies were usually held jointly should be read in the context of the Abbey National account being an exception.

In relation to the claim by Mr Fox that the Property was held on trust, a letter had been written in the context of the Scheme implementation by him to specifically state that there was no trust. Although this was in the context of the First Contract the FTT had relied upon the letter to show that Mr and Mrs Fox were alive to the risks of the transactions not giving rise to sole beneficial ownership at each stage.

In relation to the submissions made by Mr Fox that the TR1 was invalid, Mr Ripley submitted that there was no basis to reach that conclusion given the findings made by the FTT.

The Scheme was designed to rely upon the provisions of section 45 in order to avoid the charge to SDLT which was otherwise chargeable on the purchase price of the Property. The Scheme was supposed to operate on the basis that:

Section 45(3) provides for a notional or deemed contract and sets out how the consideration for that contract should be calculated. If Mr and Mrs Fox had not been connected persons the result would have been that the consideration would have been the £10,000 only as the consideration paid for the transfer of the right to call for the conveyance under section 45(3)(b)(ii). No amount would have been added under section 45(3)(a) because none of the consideration under the original contract as was referable to the subject-matter of the transfer of rights to Mr Fox was to be given (directly or indirectly) by Mr Fox.

However, those involved overlooked the fact that the provisions in section 45(3)(a) required consideration referable to the subject matter of the transfer of rights to Mr Fox, (i.e. the Property) which was paid by a connected person to be taken into account. Mrs Fox was connected to Mr Fox.

The submissions made by Mr Fox at the hearing before us made clear that his appeal focuses on the adequacy of the consideration under the Second Contract. Mr Fox’s case is that the Second Contract was not valid as a result of the inadequacy of the consideration and consequently section 45(1)(b) did not apply because he was not entitled to call for a conveyance of the Property.

As the FTT identified, despite those arranging the implementation of the Scheme overlooking the fundamental problem caused by Mr and Mrs Fox being connected persons, they were concerned to ensure that Mr and Mrs Fox should both enter into the transactions under the Scheme on the basis of sole beneficial entitlement in order to avoid the application of paragraph 3 Schedule 16 Finance Act 2003.

The FTT therefore carefully considered the basis upon which the contracts were entered into, whether monies were jointly held and whether the Property was ultimately acquired by Mr Fox as trustee. Mr Fox’s appeal before us is, in effect, challenging the findings made by the FTT that he paid £10,000 from an account in his sole name, to which he was solely entitled, to an account in Mrs Fox’s sole name, to which she was solely entitled. We see no basis for such a challenge to be made.

Mr Fox’s case has been substantially based on saying that he and his wife would view funds in bank accounts as being jointly held. However, the FTT expressly took this into account. It identified that the First Direct account was specifically set up for the implementation of the Scheme in Mr Fox’s sole name and the £10,000 paid from that account was paid to the Abbey National account in Mrs Fox’s sole name where the funds remained for some months. The FTT concluded that this indicated an intention to show that the £10,000 belonged to Mrs Fox only in accordance with the Scheme. There is no inconsistency, as suggested by Mr Fox, in these findings with those where the FTT stated that “there were few movements on the [Abbey National] account and only a modest balance. Substantially all, if not all, of Mr and Mrs Fox’s financial transactions were usually in jointly held accounts and their assets were for the most part usually held jointly.” The fact that prior to the Scheme, bank accounts had been operated and viewed as joint accounts did not prevent the clear steps to set up and use sole accounts from being respected. Indeed, Mr Fox accepted at the hearing before us that the First Direct account was a sole account in his name to which he was solely entitled.

Furthermore, the cases of Re Bishop [1965] Ch 450 and Pflum v HMRC [2012] UKFTT 365 (TC) to which we had referred the parties prior to the hearing, are directly relevant to this issue. In Re Bishop the court considered the nature of monies withdrawn from a joint bank account to which a husband-and-wife jointly contributed. The question to be determined was whether any investments bought by the husband out of the monies in the account were owned solely by him or were owned jointly with his wife. In holding that the investments concerned were owned solely by the husband, Stamp J at Page 456 of the judgment said:

“Where a husband and wife open a joint account at a bank on terms that cheques may be drawn on the account by either of them, then, in my judgment, in the absence of facts or circumstances which indicate that the account was intended, or was kept, for some specific or limited purpose, each spouse can draw upon it not only for the benefit of both spouses but for his or her own benefit. Each spouse, in drawing money out of the account, is to be treated as doing so with the authority of the other and, in my judgment, if one of the spouses purchases a chattel for his own benefit or an investment in his or her own name, that chattel or investment belongs to the person in whose name it is purchased or invested: for in such a case there is, in my judgment, no equity in the other spouse to displace the legal ownership of the one in whose name the investment is purchased. What is purchased is not to be regarded as purchased out of a fund belonging to the spouses in the proportions in which they contribute to the account or in equal proportions, but out of a pool or fund of which they were, at law and in equity, joint tenants”.

As stated in Pflum at [57]

“The essence of joint ownership of a bank account where withdrawals can be made without restriction by either party is that the sums belong to the party who withdraws them, and this principle underlies the decision in Re Bishop.”

In the case of an account such as we see in this case, which is in a person’s sole name, there can be even less basis to suggest that sums belong to anyone other than that individual.

We are therefore satisfied that the £10,000 was money withdrawn from a bank account in his sole name by Mr Fox and paid to Mrs Fox by transfer to her bank account in her sole name for the Property in accordance with the Second Contract. There was therefore clearly consideration for the Second Contract, provided by Mr Fox out of his own money. As a result, under the terms of the contract Mr Fox was entitled to call for a conveyance of the Property and the requirements contained in section 45(1)(b) were satisfied.

Having reached that conclusion, it is not necessary to consider the validity of the TR1. The application of section 45 is determined by the satisfaction of the provisions in sections 45(1)(a), (b) and (c). However, we note that we see no basis to disturb the FTT’s findings regarding the TR1.

It is also clear to us that the FTT ‘s conclusion that Mr Fox did not hold the Property as trustee for himself and his wife was one to which it was entitled to make. The FTT weighed up the factors in favour of, and against, finding an implied trust. Mr Fox has not identified any matters which the FTT is said to have failed to have taken into account. Instead, Mr Fox’s challenge is essentially a disagreement with the conclusion reached by the FTT, but given the analysis carried out by it, we find no error of law in that conclusion. In essence, the Scheme required that Mr Fox be the sole beneficial owner on completion of the purchase of the Property. That was the parties’ intention and that intention was reflected in the transactions, care being taken to ensure that monies moved between sole bank accounts of Mr and Mrs Fox, Mr Fox providing a letter disclaiming any trust interest under the First Contract and the TR1 completed with the box identifying a trust left blank.

The result is therefore in line with the actions and intentions of the parties save for the fact that the Scheme did not work as a result of Mr and Mrs Fox being connected. Mr and Mrs Fox entered into the Scheme to avoid SDLT. The Scheme did not work as a result of the connected persons’ rule, but it is entirely clear, as found by the FTT, that the parties took clear steps to structure transactions in line with the Scheme.

Consequently, the FTT was right in conclusion, as summarised [26] above, that as a result of the application of section 45 the chargeable consideration for the land transaction in this case was £1,085,000. Mr Fox alone is liable to pay the SDLT chargeable in respect of that consideration as he is to be regarded as the transferee under the conveyance that vested the property both legally and beneficially in him alone.

We are therefore satisfied that there was no error of law in the Decision.

The appeal is dismissed.