In Oisin Fanning v HMRC  TC07776, the First Tier Tribunal (FTT) found that HMRC's discovery assessment was validly issued. The assessment represented a 5% SDLT charge on the purchase price of a £5 million property in London. Mr Fanning (the taxpayer) had used an avoidance scheme involving a sub-sale relief and grant of options.
- The taxpayer is the CEO of an Irish company. The taxpayer and other staff spent around a week every month working in London and stayed in serviced apartments.
- The taxpayer decided to purchase a property in London, which under a mutually beneficial arrangement.would be rented to the Company for staff accommodation when in London.
- A Stamp Duty Land Tax (SDLT) scheme was entered into using the following steps:
- The Vendor (‘V’) and a third-party purchaser (‘P’) entered into a contract for the sale of a chargeable interest in land to be completed by a conveyance.
- At the same time as the completion of the V-P contract of sale, P granted another person (‘O’) a call option over the chargeable interest for a nominal consideration. The option exercise price was not less than the market value of the chargeable interest at the date of the exercise.
- P occupied the property having paid the full purchase price demanded under the VP contract of sale.
- The option was not exercised by O (save as part of any onward sale to some other person). Although in this case, the taxpayer claimed that the option may be exercised.
- O co-operates in the Scheme. Unless and until the option is exercised, SDLT is chargeable on the (deemed) consideration for the secondary contract, which in this case was £100.
- In September 2011 a SDLT return was filed within days of completion of the property purchase reporting a £nil SDLT liability.
- The SDLT return claimed relief under the ‘other’ code and provided no further details.
- No enquiry was raised by HMRC following the submission of the return.
- In March 2014 a Discovery assessment was issued by HMRC for the sum of £250,000.
- The taxpayer appealed. After four years of review, the taxpayer appeled to the Tribunal.
The FTT found that:
- HMRC's discovery assessment was valid.
- The option was found to be an ‘other transaction’ for the purposes of SDLT, contract and conveyance.
- The sub-sale was not completed or substantially performed simultaneously to the completion of the original sale.
- On considering whether s.75A FA 2003 applied, it was found that the exercise of the option was not a scheme transaction.
- S.75 A (6) FA 2003 applies on the basis that the effective date of the notional transaction is the date of completion of the scheme transactions in 2011 and the chargeable consideration is £5 million paid by the taxpayer to the vendor.
The appeal was dismissed.
- S.75A FA 2003 was introduced in 2006 as a response to schemes and arrangements where the objective was to reduce or eliminate a charge to tax in a way which was contrary to the intention of the SDLT legislation.
- The legislation differs from other targeted tax avoidance legislation, as s.75A does not contain a tax avoidance ‘main purpose test’.
This particular type of SDLT tax avoidance scheme was blocked by an amendment to the legislation which took effect from 21 March 2012.
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