In Michael & Bridget Brown v HMRC  TC08158, the First Tier Tribunal (FTT) concluded a Stamp Duty Land Tax (SDLT) avoidance scheme did not work. That the property was transferred to the Appellants by way of capital reduction did not avoid an SDLT charge.
- An unlimited company was incorporated on 2 July 2007.
- Mr and Mrs Brown (the Appellants) each subscribed for 47,751 £1 shares at par.
- On 9 July 2007, the company agreed to purchase a property for £955,000 paying a deposit of £95,000 which was funded by the share subscription.
- On 8 August 2007, the company issued further shares to the Appellants at par bringing the total nominal value of the shares to £960,002.
- On 15 August 2007 the company resolved to reduce its share capital to £2 by way of a distribution in specie of the property to the Appellants conditional on, and simultaneous with, the completion of the property purchase contract.
- On this date, the company used the balance of money from the share subscriptions to complete the purchase of the property.
- The transfer of the property from the company to the Appellants was executed the same day showing no consideration. The company’s share capital was reduced accordingly.
- The Appellants made no SDLT return on the basis that the reduction in capital meant that no chargeable consideration was given for the transfer of the property to them.
- On 8 August 2011 HMRC issued a notice of determination to the appellants for SDLT at 4% of £955,000, the Applicable rate at that time.
- An Appeal was lodged by the Appellants with the FTT.
The FTT dismissed the appeal finding that:
- The conditions in s.45 Finance Act 2003 applied as:
- The company agreed to buy the house from the vendor.
- The company then entered into a transaction with the Appellants under which they acquired the property.
- The purchase and the transaction happened at the same time.
- As a result, a notional contract between vendor and Appellant needed to be considered.
- The FTT viewed the whole share subscription of £960,002 as the consideration for this notional contract.
- However, the FTT did not have the jurisdiction to amend HMRC’s determination which was based on the amount paid for the property by the company, £955,000.
- The determination was therefore upheld and SDLT was due on £955,000.
- The general SDLT anti-avoidance provisions in s.75A FA 2003 did not apply as SDLT was chargeable under s.45 FA 2003.
Useful guides on this topic
SDLT: At a glance, Stamp Duty Land Tax, rates & allowances
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SDLT: Stamp Duty Land Tax, start here
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How to appeal an HMRC decision
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