In The Tower One St George Wharf Limited v HMRC [2025] EWCA Civ 1588, the Court of Appeal (CoA) found that a series of transactions involving the grant and transfer of a property lease amongst group companies triggered Stamp Duty Land Tax (SDLT) anti-avoidance provisions.
In 1997, a company in a group with the taxpayer acquired a development site.
- In 2000, the company sold the beneficial interest in the site to another group company but retained legal title as a bare trustee. Development then began on a 50-storey residential building, with units offered for sale off-plan.
- By 5 July 2011, the building had a book cost of £30 million and a market value of around £200 million.
On 5 July 2011, there was a series of transactions, including the grant of a 999-year lease of the building to another group company at book cost, followed by its transfer to the taxpayer at its carrying value (i.e. book cost).
- While there were commercial reasons for transferring the Tower, the main purpose of the transactions was to obtain a Corporation Tax advantage. The First Tier Tribunal (FTT) later confirmed that the Corporation Tax planning failed.
The Stamp Duty Land Tax (SDLT) returns that were filed for both the grant of the lease and the subsequent transfer claimed group relief exemption under Schedule 7 of Finance Act 2003.
- The Corporation Tax enquiry led to a review of the SDLT position.
- Grouped companies cannot claim SDLT relief for properties they transfer between themselves where the main purpose of the arrangement is to avoid tax.
- HMRC's original conclusion was as follows:
- Grant of lease: Sub-sale relief was available and no SDLT was due.
- Transfer of lease: Group relief was not available because the main purpose of the transfer was to avoid liability to Corporation Tax. (par 2 (4A) Schedule 7).
- HMRC based the SDLT assessment for the transfer on the property's market value and not the consideration paid. This totalled £8 million, being 4% of £200 million.
The taxpayer appealed the assessment, firstly to the FTT and subsequently to the Upper Tribunal (UT).
- The FTT ruled that group relief was not available and that using market value for the SDLT assessment was correct under section 53 of Finance Act 2003.
- The UT agreed with the FTT and confirmed that using the market value basis was correct because the Case 3 exception in section 54(4) of Finance Act 2003 did not apply.
- The effect of the Case 3 exception is that where a transaction involves the distribution of a company's assets (which includes the transfer of a lease), the market value basis for assessing SDLT does not apply.
- This exception is subject to the proviso that group relief has not been claimed "within the period of three years immediately preceding the effective date of the transaction".
- Following these decisions, the taxpayer dropped their group relief claim but felt the UT were wrong in ruling that the Case 3 exception did not apply. The taxpayer appealed to the Court of Appeal.
The Court of Appeal found that:
- The Case 3 exception in section 54(4) of Finance Act 2003 did apply.
- The taxpayer argued that the three-year period referred to in the Case 3 exception did not include the day of the transaction itself. The Court of Appeal, however, held that this was not Parliament's intention and that there was a drafting error. The legislation should be read to include other transactions occurring earlier on the same day as the transfer in question.
- The Court of Appeal agreed that the reference to an earlier claim referred to a successful claim. Since the earlier transaction for the initial grant of the lease did not qualify for group relief, the proviso did not come into effect for the transfer of the lease.
- This determination ultimately did not help the taxpayer.
- The anti-avoidance legislation in section 75A of Finance Act 2003 also applied.
- Section 75A applies where a series of structured transactions results in less SDLT being payable than would have been owed on a straightforward direct sale. In such cases, the provision operates to substitute the higher SDLT charge, being the greater of the SDLT payable on the actual transactions and the SDLT that would have been payable on a notional direct sale.
- The Court held that the disposal and acquisition in this case comprised a share sale; the initial grant of the lease and subsequent transfer of that lease. The SDLT payable on those transactions taken together would therefore exceed the SDLT payable on the actual transactions.
- Applying section 75A, the chargeable consideration for SDLT purposes could have exceeded that already assessed. HMRC, however, confirmed that they were not seeking to increase the amount of assessment that the FTT had upheld.
The appeal was dismissed.
Useful guides on this topic
SDLT: Leases
How does Stamp Duty Land Tax (SDLT) apply to leases? When do I notify HMRC?
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?
Groups
What qualifies as a group for tax purposes? How do you form a group? Which definition of a group applies to different types of tax? What are the benefits of being in a group?
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The Tower One St George Wharf Limited v HMRC [2025] EWCA Civ 1588