SDLT Avoidance Scheme Fails

Although some law is ‘common law’ and some effectively the result of decisions of the courts, when law is in written form, the exact meaning of the words used is of prime importance in interpreting what the law means, as a recent case shows clearly.



It involved the transfer of a property valued at more than £65 million. It was first sold to a company and then immediately sold on to a partnership of which the company was a member.



The plan behind the sale and subsequent resale was to avoid Stamp Duty Land Tax (SDLT) on the transfer of the property to the partnership. The purchasers claimed that the transfer to the partnership was exempt from SDLT because it represented the transfer of an asset by a partner to a partnership of which he is a member. Such transactions are exempted under the Finance Act 2003.



The SDLT at stake was some £2.6 million.



HM Revenue and Customs (HMRC) argued that the exemption did not apply and the matter ended up in the Court of Appeal.



The issue turned on whether the company had, for SDLT purposes, ever acquired a ‘chargeable interest’ in the property. Under the law as it then stood, the effective date of the transaction between the company and the partnership was the same as that between the vendor and the company. As the legislation was written, this meant that the company never acquired a chargeable interest in the property. If the company never acquired a chargeable interest in it, the partnership could not rely on the exemption.