A luxury property developer, the taxpayer, has lost his case at the Court of Appeal (CoA) concerning the time-limit for amending Stamp Duty Land Tax (SDLT) returns. The taxpayer had acquired a 201-year lease on a property in Chelsea for a consideration of £48m payable in four instalments. The taxpayer paid the first instalment of £7.39m.
Normally SDLT is due 14 days (since 2019) after completion of property acquisition. At the time the of the transactions in the case the time limit for submission and payment of an SDLT return was 30 days from the effective date, which is typically completion. To counteract tax avoidance schemes that were known as ‘resting on contract’ the SDLT legislation stipulates that where a property acquisition contact is substantially performed then the effective date is the date when the contract is substantially performed. Substantial performance is defined as when the purchaser takes occupation or starts earning rent. Before this tax avoidance counteracting legislation was enacted it was possible for parties to land transactions to indefinitely defer stamp duty (the predecessor to SDLT) by arranging for small balances to remain outstanding under the land purchase documents and therefore they transactions would never complete and stamp duty wouldn’t become payable.
In this case, the taxpayer’s builders started working on the property soon after the agreements were made so the contract to acquire the lease was considered substantially performed. Therefore, SDLT of £1.92m was payable on the lease acquisition of £48m.
Over a year later, while over £40m remained to be paid on the lease acquisition contract, the taxpayer novated the lease agreement to his brother, for no consideration, and the brother then started to occupy the property. Again, this occupation meant that that another land transaction had been substantially performed and SDLT became payable on the £48m lease. After this novation, the first brother, the taxpayer, then claimed a refund from HMRC in relation to the payment of £1.92m, holding that the contract to acquire the lease had rescinded or been annulled, due to the novation to his brother. HMRC rejected this claim as the relevant tax return had been filed more than 12 months earlier and therefore the taxpayer was time-barred from obtaining a refund.
The taxpayer tried to argue that Parliament wouldn’t have intended for the double economic tax that had been incurred but the CoA considered otherwise. It held that the time limits are there for a good reason, to provide certain and finality to HMRC and taxpayers alike. HMRC have 9 months to enquire into an SDLT return while taxpayers have 12 months to amend an SDLT return. The CoA also found that the SDLT regime was working effectively as the brother had effectively sub-sold the property to his brother by way of the novation without consideration as over £40m remained payable.
The decision can be found at: Christian Peter Candy v The Commissioners for HMRC – Find case law (nationalarchives.gov.uk)
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