In a ruling which vividly underlines that even the best laid tax plans cannot always succeed, a ‘simple and elegant’ scheme which was designed to save £2.6 million in stamp duty on the purchase of an Oxford Street department store has been declared ineffective by the Court of Appeal.
A company had contracted to purchase the store’s head lease for £65.1 million. Prior to completion of the transaction, a partnership was established, the partners in which were all connected to the company. The company was entitled to 98% of the partnership income however, critically for the purposes of the scheme, one of the partners was not a body corporate.
The day after the partnership was established, the company entered into a contract with the partnership under which it agreed to sell to the partnership the same head lease at the same price. Transfers of the head lease from the original vendor to the company, and from the company to the partnership, were executed simultaneously.
It was submitted by the company that, on a correct interpretation of sections 44 and 45 of the Finance Act 2003, the chain of transactions did not give rise to liability for stamp duty. Her Majesty’s Revenue and Customs (HMRC) disputed that claim, however the company’s arguments succeeded before the Upper Tribunal.
Allowing HMRC’s appeal, the Court noted that the Upper Tribunal had acknowledged that the interpretation of the relevant statutory provisions contended for by the tax authorities created a sensible result on the facts and that Parliament would not consciously have intended the result for which the company argued.
The Court upheld HMRC’s ‘simple, logical and attractive’ interpretation which had the result that the partnership was not entitled to rely upon a statutory exemption from stamp duty and was liable for the tax charge on the price that it had paid the company to acquire the head lease.