Michael Brown & Anor v The Commissioners for His Majesty’s Revenue and Customs

For the purposes of Finance Act 2003, consideration is not confined to value supplied under a binding contract. In a preordained SDLT avoidance scheme, the statutory provisions must be construed purposively and the transaction assessed realistically as a whole.

Where a purchaser funds an intermediary company solely to acquire land under the original contract, the purchase price may be consideration given indirectly by the purchaser under section 45(3)(b)(i). The same value cannot also be charged under section 45(3)(b)(ii). A Revenue determination need identify the chargeable acquisition and tax due; it need not state whether liability arises under section 45 or the notional transaction under section 75A.

Mr and Mrs Brown used an SDLT avoidance arrangement to acquire a Surrey house. They subscribed for shares in an unlimited company. The company contracted to buy the house and, on completion, reduced its capital and distributed the house to them in specie.

The First-tier Tribunal dismissed their appeal against HMRC’s Revenue determination. It held that section 45 of the Finance Act 2003 applied and that £960,002 was chargeable consideration under section 45(3)(b)(ii). It also held that a liability under section 75A could not be imposed through the determination.

On appeal, the central questions were the chargeable consideration under section 45(3)(b), whether the FTT had unfairly decided an unpleaded point, and whether the determination could encompass a section 75A liability.

1. Appeal dismissed. The FTT erred in treating £960,002, paid or payable for the company shares, as consideration for the transfer of rights under section 45(3)(b)(ii) of the Finance Act 2003. The Upper Tribunal set aside that part of its decision and remade it. Mr and Mrs Brown were liable to SDLT on £955,000 under section 45(3)(b)(i).

2. The modern purposive approach applies to fiscal legislation. Where a tax-avoidance scheme consists of steps planned in advance, the court may, and where appropriate must, consider the scheme as a whole and realistically. It is unnecessary that later planned steps were legally bound to occur.

3. “Consideration” for SDLT is not limited to value given under a contract. The statutory scheme taxes value in money or money’s worth given, directly or indirectly, for the acquisition. Here the company had no commercial function apart from implementing the planned acquisition. The Browns’ share subscriptions funded the company’s payment of the £955,000 purchase price. That sum was therefore consideration under the original contract given indirectly by them within section 45(3)(b)(i).

4. Section 45(3)(b) prevents double counting. It aggregates consideration given for the property under the original contract and any additional consideration for the transfer of rights. Once the £955,000 was brought into account under limb (i), no further consideration arose under limb (ii).

5. The unpleaded-point issue did not strictly arise. In any event, the FTT’s jurisdiction over the determination allowed it, subject to fairness, to consider points not advanced by the parties. No relevant prejudice was shown because the factual finding of a preordained scheme was sufficient and no overarching contract was required.

6. The section 75A issue also did not strictly arise. Nevertheless, the determination and its covering letter adequately identified the chargeable acquisition and the tax calculated on £955,000. It was capable of imposing SDLT arising from a section 75A notional transaction, without separately specifying that statutory route.

• Upper Tribunal (Tax and Chancery Chamber): appeal dismissed. The tribunal set aside the FTT’s conclusion that section 45(3)(b)(ii) produced consideration of £960,002 and remade the decision: SDLT was payable on £955,000 under section 45(3)(b)(i) of the Finance Act 2003.
• First-tier Tribunal: decision released on 7 June 2021. It dismissed the taxpayers’ appeal against HMRC’s Revenue determination under paragraph 25 of Schedule 10 to the Finance Act 2003.