In Michael & Bridget Brown v HMRC [2012] 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
What is Stamp Duty Land Tax (SDLT)? What are the rates of Stamp Duty Land Tax (SDLT)?

SDLT: Stamp Duty Land Tax, start here
What is SDLT? What are the SDLT rates? What is exempt from SDLT? What reliefs are available? When are returns due? When can you amend a return?

How to appeal an HMRC decision
Disagree with a HMRC decision? How to appeal, what type of decision can you appeal, what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External links

Michael & Bridget Brown v HMRC [2012] TC08158

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