The Court of Appeal ended a couple's attempt to claim stamp duty land tax under a deceptively simple sub-sale relief scheme. The scheme just did not work. A company incorporated to purchase a property and then transfer it to its individual owners by way of a capital reduction did not avoid any tax as the subscription price of their shares formed consideration for the property.

In Michael & Bridget Brown v HMRC [2024] EWCA Civ92, the taxpayers implemented a Stamp Duty Land Tax (SDLT) sub-sale relief Avoidance Scheme when purchasing a residential property.

An unlimited company was incorporated by Mr and Mrs Brown and each subscribed shares in the company.

  • The company agreed to purchase a residential property for £955,000, paying a deposit of £95,000 which was funded by the share subscription.
  • A couple of days later, the couple transferred cash to the company which issued further shares to the Appellants at par bringing the total nominal value of the shares to £960,002.
  • The company then resolved to make a Capital Reduction and distribute its share capital back to its shareholders, by way of A distribution in specie of the property to the Appellants conditional on the completion of the property purchase contract.
    • At the same time, 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.
  • The company claimed sub-sale relief.
  • No SDLT return was filed by the couple, as it was argued no chargeable consideration was paid by them.
  • 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 taxpayers.

The FTT dismissed their appeal finding that:

  • The anti-avoidance provisions applied and that a notional contract, encompassing the whole transaction should be considered.
  • The consideration for that notional contract should include the value of the share subscription.
  • HMRC’s determination of SDLT due on consideration of £955,000 was correct.
  • The appellants appealed to the UT.

The UT found that:

  • The consideration subject to SDLT for the transaction should be £955,000 as:
    • The purpose of the legislation is to charge SDLT on any transaction which is the acquisition of a chargeable interest in land.
    • The legislation does not require consideration to be paid under a contract to charge SDLT on value paid for an interest in land.
    • Consideration is money, or money’s worth, given for the subject matter of the transaction.
    • The share subscriptions were money paid, albeit indirectly, for the property. Those subscriptions represented consideration for the property and should be subjected to SDLT accordingly.

Both the FTT and the Upper Tribunal said the scheme did not work but for different reasons.

The couple appealed to the Court of Appeal (CoA) which confirmed that:

  • The Company’s sole purpose was to enable Mr and Mrs Brown to avoid SDLT on the acquisition of the Property.
  • 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.
  • 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.
  • Mr and Mrs Brown had indirectly funded the purchase: they were connected with their company

HMRC therefore had the right to make a determination based on the notional contract and by the application of the SDLT anti-avoidance provisions.

The appeal was dismissed.

Useful guides on this topic

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?

Capital Reductions: distributing capital reserves
What is a capital reduction? How do you implement one? When should a capital reduction be undertaken?

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

SDLT avoidance scheme fails
In Michael & Bridget Brown v HMRC [2022] UT00298, the Upper Tribunal (UT) confirmed that a stamp duty sub-sale avoidance scheme under which a company incorporated to purchase a property and transferred it to its owners by way of a capital reduction did not avoid any tax: the subscription price of their shares formed a consideration for the property.

External links

Michael & Bridget Brown v HMRC [2022] UKUT00298