Sub-sale relief avoidance scheme failed to save £250,000 SDLT

In Oisin Fanning v HMRC [2022] UKUT 00021, the Upper Tribunal dismissed an appeal against a £250,000 assessment for Stamp Duty Land Tax (SDLT), confirming that a sub-sale relief tax avoidance scheme used failed to meet the qualifying conditions for the relief to work.

• Glendale Enterprises Four Ltd (the Vendor) entered into an agreement with Mr Fanning (the purchaser) for the sale of a property for £5.2 million (£200,000 of which was for SDLT-exempt chattels).
• On the same day, Mr Fanning and San Leon Energy Plc (an Irish company of which Mr Fanning was the Executive Chairman but had no connection for tax purposes) executed a deed for £100 that gave the company an Option to purchase the property for market value. The Option was valid from 2016 until 2031 and needed written notice in order to be exercised.
• HMRC raised a Discovery Assessment for £250,000 of SDLT based on the £5 million consideration for the original contract.
• It was an undisputed fact that if the planning did not have effect, SDLT would be chargeable on the sale of the property for £5 million.
• In opposing the assessment, Mr Fanning relied upon the SDLT legislation, as found in Finance Act 2003. On that basis, Mr Fanning contended that:
  • The original contract and the Option both fell within s.45 FA 2003, as the contract for a land transaction and the 'assignment, sub-sale or other transaction' of the original subject matter.
  • s.45(2) states that the transferee of the second transaction is not considered to have entered into a land transaction for SDLT purposes and no SDLT was payable on the grant of the Option.
  • As the two transactions were part of an arrangement, s.45(3) deems the latter transaction to be a secondary contract which allows the first to be disregarded. The consideration of the secondary contract is the consideration given for the transfer of rights, e.g. £100.
• HMRC argued that the Option was not an 'assignment, sub-sale or other transaction'. This has since been legislated for by s.45(1A) FA 2003 which took effect from March 2012 (after the transaction).
• The FTT concluded that the Option was sufficient to fall within s.45(1)(b) FA 2003, but it was not enough to be a 'secondary contract', which required a deemed land transaction. The consideration was held to be both the £100 and the market value required for the exercise of the Option, i.e. £5 million.
• Without the full consideration, there was no substantial performance and no means of disregarding the original agreement, for which SDLT of £250,000 was due.

Mr Fanning appealed to UT on the basis that the FTT were wrong to assume the consideration was anything more than £100.

The UT held:

• That the FTT was wrong to find that the Option was an 'assignment, sub-sale or other transaction' and so failed to set aside the original transaction.
• The secondary contract is required to be completed by a conveyance which was not the case for the Option.
• Even if the Option had fulfilled the criteria, the consideration clearly included the market value of the property and not just £100.

The appeal was dismissed.

Useful guides on this topic

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?

Discovery Assessments: SDLT
When can HMRC issue a Stamp Duty Land Tax (SDLT) assessment outside of the normal statutory time limits? What conditions must be met?

SDLT: Amending returns
How do I amend an SDLT return?  When can I amend an SDLT return?

External links

Oisin Fanning v HMRC [2022] UKUT 00021

Oisin Fanning v HMRC [2020] TC07776