Project Blue Limited v Commissioners for Her Majesty’s Revenue and Customs

Section 75A of the Finance Act 2003 applies when connected transactions objectively reduce stamp duty land tax below that payable on the statutory notional transaction. A tax-avoidance motive is unnecessary. The statutory purchaser is identified purposively by locating the tax loss and the person whose acquisition would otherwise have borne the tax.

Under the legislation then in force, section 71A addressed the parties’ real-world alternative-finance transactions. A sub-sale disregard did not prevent the customer from being the vendor to the financial institution. Contingent consideration is initially taxed on the assumption that it becomes payable. The taxpayer must claim repayment under section 80 if it does not. Section 75B cannot exclude or apportion consideration for a sub-sale expressly classified as non-incidental.

Project Blue Limited v Commissioners for Her Majesty’s Revenue and Customs concerned the stamp duty land tax consequences of acquiring the former Chelsea Barracks for £959m using Shari’a-compliant Ijara finance. Project Blue Limited contracted to buy the freehold from the Ministry of Defence, sub-sold it to the financing institution for £1.25bn, and immediately took a lease back with options for reacquisition.

The taxpayer claimed sub-sale relief under section 45 of the Finance Act 2003. The financier claimed the alternative-property-finance exemption under section 71A. The combined claims would have left the transactions free of tax unless the anti-avoidance provisions in section 75A applied.

The First-tier Tribunal held that section 75A applied. The Upper Tribunal agreed that the taxpayer was the vendor for section 71A but, by a casting vote, assessed the notional consideration by reference to £959m. The Court of Appeal, [2016] EWCA Civ 485, reported at [2018] 1 WLR 368, held that the taxpayer was not the vendor under section 71A and that section 75A did not impose liability on it. The central issues were the interaction between sections 45 and 71A, the identification of the purchaser under section 75A, and the amount chargeable on the notional transaction.

1. Appeal allowed by a majority of four to one. Lord Hodge, with whom Lady Hale, Lord Hughes and Lord Lloyd-Jones agreed, held that Project Blue Limited was liable under section 75A of the Finance Act 2003. The chargeable consideration was £1.25bn, producing tax of £50m, subject to the taxpayer’s right to claim repayment under section 80 for contingent consideration which was never paid.

2. Section 71A was a self-contained regime expressed in the language of real-world transactions. Its purpose was to place Ijara finance on a level footing with conventional secured lending by taxing the property purchaser while exempting the financing arrangements. The relevant question under section 71A(2) was who actually sold the major interest to the financial institution. Project Blue Limited did so. The disregard in section 45(3) did not alter that answer, and the financier’s acquisition was exempt. The majority distinguished DV3 RS LP v Revenue and Customs Comrs [2014] 1 WLR 1136, which concerned a provision requiring the transferor itself to possess a chargeable interest.

3. Section 75A required no purpose or motive of tax avoidance. It was enough that the connected transactions produced less tax than the statutory notional transaction. The statutory vendor and purchaser were not selectable at HMRC’s discretion. They had to be identified purposively by locating the tax loss and determining who would have borne the tax absent the scheme transactions. The Ministry of Defence was the vendor and Project Blue Limited was the purchaser. The latter acquired a lease derived from the former’s freehold and obtained the benefit of the combined section 45 and section 71A reliefs. Section 75A(7) did not apply because alternative-property-finance relief was not the sole cause of the tax reduction.

4. The £1.25bn which the financier contracted to pay was the largest consideration for the scheme transactions and therefore governed section 75A(5). Sections 51 and 80 deliberately tax contingent consideration initially and place the initiative on the taxpayer to obtain repayment when a contingency fails. Section 75B did not permit the sub-sale consideration to be treated as incidental or apportioned. A sub-sale was expressly excluded from incidental treatment.

5. The proposed interpretation under section 3(1) of the Human Rights Act 1998 was rejected. Any indirect religious discrimination was objectively justified by the need for a broad anti-avoidance rule and the statutory safeguards. The taxpayer was also not a victim if its section 80 repayment claim reduced the taxable consideration to the amount paid for the land. HMRC could amend the existing return because its inquiry extended to the tax consequences of the disclosed sale. The statutory scheme also precluded treating the Ijara transactions as merely creating an exempt security interest.

6. Lord Briggs dissented. He considered that section 45(5A)(b), read contextually with section 71A(2), made the Ministry of Defence the vendor under the completed secondary contract. The financier’s purchase was therefore chargeable, section 75A was unnecessary, and HMRC’s appeal should have been dismissed.

1. United Kingdom Supreme Court: In Project Blue Limited v Commissioners for Her Majesty’s Revenue and Customs [2018] UKSC 30, the court allowed HMRC’s appeal by a majority of four to one. It held Project Blue Limited liable for £50m of stamp duty land tax, subject to its statutory repayment claim.
2. Court of Appeal: In [2016] EWCA Civ 485, reported at [2018] 1 WLR 368, the court held that Project Blue Limited was not the vendor for section 71A, that the financier’s purchase was not exempt, and that section 75A did not impose liability on Project Blue Limited.
3. Upper Tribunal: Morgan J and Judge Nowlan held that Project Blue Limited was the vendor for section 71A and that section 75A applied. By the presiding member’s casting vote, the chargeable consideration was treated as £959m rather than £1.25bn.
4. First-tier Tribunal: The tribunal held that section 75A did not require a tax-avoidance motive and applied to the connected transactions. It permitted HMRC to contend that the chargeable consideration was £1.25bn.