Share subscriptions were consideration for SDLT

In Michael & Bridget Brown v HMRC [2022] UT00298, the Upper Tribunal (UT) confirmed that a stamp duty sub-sale avoidance scheme under which a company incorporated to purchase a property and transfered it to its individual owners by way of a capital reduction did not avoid any tax: the subscription price of their shares formed consideration for the property.

• The taxpayers implemented a Stamp Duty Land Tax (SDLT) Avoidance Scheme when purchasing a residential property whereby:
  • An unlimited company was incorporated on 2 July 2007, its owners, Mr and Mrs Brown (the Appellants) each subscribed for 47,751 £1 shares at par.
  • On 9 July 2007, the company agreed to purchase a property for £955,000 paying a deposit of £95,000 which was funded by the share subscription.
  • On 8 August 2007, the company issued further shares to the Appellants at par bringing the total nominal value of the shares to £960,002.
  • On 15 August 2007 the company resolved to reduce its share capital to £2 by way of a distribution in specie of the property to the Appellants conditional on, and simultaneous with, the completion of the property purchase contract.
  • On this date, the company used the balance of money from the share subscriptions to complete the purchase of the property.
  • The transfer of the property from the company to the Appellants was executed the same day showing no consideration. The company’s share capital was reduced accordingly.
• The Appellants made no SDLT return on the basis that the reduction in capital meant that no chargeable consideration was given for the transfer of the property to them.
• On 8 August 2011 HMRC issued a notice of determination to the appellants for SDLT at 4% of £955,000, the Applicable rate at that time.
• An Appeal was lodged by the taxpayers with the FTT which was dismissed as:

• A notional contract, encompassing the whole transaction should be considered.
• The consideration for that notional contract should encompass the value of the share subscription, HMRC’s determination of SDLT due on consideration of £955,000 should not be displaced.

• The appellants appealed to the UT.

The UT found that:

• The consideration subject to SDLT for the transaction should be £955,000 as:
  • The purpose of the legislation is to charge SDLT on any transaction which is the acquisition of a chargeable interest in land.
  • The legislation does not require consideration to be paid under a contract to charge SDLT on value paid for an interest in land.
  • Consideration is money, or money’s worth, given for the subject matter of the transaction.
  • The share subscriptions were money paid, albeit indirectly, for the property. Those subscriptions represented consideration for the property and should be subjected to SDLT accordingly.

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?

How to appeal an HMRC decision
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

SDLT avoidance scheme fails
In Michael & Bridget Brown v HMRC [2012] TC08158, the First Tier Tribunal (FTT) concluded a Stamp Duty Land Tax (SDLT) avoidance scheme did not work. That the property was transferred to the Appellants by way of capital reduction did not avoid an SDLT charge.

External links

Michael & Bridget Brown v HMRC [2022] UKUT00298