SDLT avoidance case
The Upper Tribunal (UT) has upheld a ruling against a Stamp Duty Land Tax (SDLT) avoidance scheme that was used by the buyers of Chelsea Barracks in January 2008. The Chelsea Barracks was sold to a company by the name of Project Blue Ltd (PBL) that is now owned by the Qatari government. The site is currently being developed into luxury apartments.
An SDLT sub-sale alternative finance scheme was used in an attempt to eliminate all of the SDLT due on the purchase of the barracks. This scheme involved a number of complex transactions that involved other parties including a Qatari bank that provided finance for the deal in a way that complied with sharia law. It is clear that use of alternative property finance transactions (which includes Islamic finance transactions) is allowed where there is no loss to the exchequer.
In this case the appellant, PBL argued that the series of transactions entered into were undertaken for commercial reasons and not to avoid tax but the use of the scheme would have meant that no tax was due. The decision of the UT centred on the applicability of s75A FA 2003. There were two main transactions that the UT examined involving sales at £959 million and £1.25 billion. The UT found the PBL was liable to pay SDLT at the rate of 4% on a chargeable consideration of £959 million. This tax bill of over £38m will put PBL in the same position as if it hadn’t used the scheme.
The UT’s decision also affects 24 similar commercial cases and similar avoidance schemes with around 900 users, protecting another £85 million in tax and is the first case to test a targeted anti-avoidance rule in the SDLT legislation.
David Gauke, Financial Secretary to the Treasury, said:
‘HMRC’s position in this important case has now been backed twice by the courts. The message is clear – tax avoidance is complex, expensive and self-defeating.’