The First-tier Tribunal (FTT) ruled that arrangements involving the removal of properties from one company to distribute an interest in a property investment partnership to one of the partners are not subject to Stamp Duty Land Tax (SDLT).
Background:
Brindleyplace Holding S.à.r.l., a company incorporated in Luxembourg, appealed against the assessment to SDLT following the acquisition in March 2015 of an interest in Tritax Brindleyplace (7, 8 & 10) Limited Partnership (BP ELP), and the subsequent transfer to it, in May 2015, of the land and buildings known as 7, 8 and 10 Brindleyplace. The taxpayer had purchased 99.8% of the units in a Jersey
Property Unit Trust (JPUT), itself a partner in BP ELP.
HM Revenue & Customs (HMRC) issued two closure notices amounting to a total of £8,071,265 (plus interest).
Decision:
The FTT allowed the taxpayers’ appeal. The Tribunal held that the distribution of an interest in a property investment partnership (PIP) to one of the partners was not subject to SDLT, as there was no consideration provided by the transferee for the transfer. Consequently, the transfer did not fall within the remit of a 'Type A' transfer within paragraph 14(3A) of Schedule 15 of the Financial Act 2003. The Judge came to this conclusion by relying on a purposive reading of the law which requires consideration to be given for the transfer of interest in the PIP.
The arrangement to transfer the properties on the winding up of JPUT is not regarded as tax avoidance and can, therefore, benefit from SDLT group relief. Indeed, in the Judge’s opinion, the transaction was carried out for bona fide commercial purposes, namely reducing structural complexity and administrative costs and thus tax avoidance was not one of the main purposes, even though there was a plan detailing the steps, order and timeframe that was set at the outset. Consequently, paragraph 2(4A) of Schedule 7 of the Financial Act 2003 was not triggered.
The Tribunal also held that the SDLT anti-avoidance provision in Section 75A of the Financial Act 2003 did not apply in such a way as to increase the amount of SDLT payable. The date of the notional transaction was the date that the property was in effect distributed.
Implications:
This decision brings clarity regarding the meaning of commercial purpose and tax avoidance but also sheds light on the operation of Section 75A. Following the ruling, it is clear that the winding up of a company in a partnership is not tax avoidance if such a transaction is carried out for bona fide commercial purposes, such as reducing structural complexity and administrative costs. It also further clarifies the manner in which a foreign company can hold UK property on trust.
This ruling elucidates that the distribution of interest in a PIP to one of the partners was not subject to SDLT due to the lack of consideration provided by the transferee. Finally, the Court noted that the date of the notional transaction was the date that the property was distributed, as is often the case.