Oisin Fanning v The Commissioners for HMRC

The Court of Appeal dismissed the appellant's challenge to an Upper Tribunal decision upholding a discovery assessment issued by HMRC for stamp duty land tax (SDLT). The court held that section 45 of the Finance Act 2003 must be read as modifying section 44 and applies to transfers that give a present entitlement to call for a conveyance; a bare option, which only gives a contingent future right unless exercised, does not satisfy s.45(1)(b). The court therefore concluded that the grant of the Option did not qualify as an "assignment, subsale or other transaction" within s.45 and relief under s.45 was not available.

Key legal principles: (i) statutory interpretation is purposive and s.45 should be read in the context of the SDLT code (s.43–47) and s.44; (ii) deeming provisions are to be applied only so far as consistent with their purpose and not so as to produce absurd results; (iii) the concepts of completion and substantial performance in s.44 require a transaction which is to be completed by a conveyance. The court therefore did not need to decide alternative arguments about the construction of s.45(3) or the application of s.75A FA 2003.

Background and procedural posture. The appellant purchased a Grosvenor Square flat for £5.2m on 16 September 2011 but filed a nil SDLT return. On the same date he granted an option over the property to San Leon Energy plc for a £100 premium. HMRC issued a discovery assessment for SDLT which was upheld on statutory review, the First-tier Tribunal rejected the appellant's position and the Upper Tribunal ([2022] UKUT 21 (TCC)) dismissed the appeal. The appellant obtained permission to bring three grounds of appeal to the Court of Appeal.

Nature of the appeal. The appellant sought reversal of the UT on three related statutory construction points: (i) whether the grant of the Option amounted to an "assignment, subsale or other transaction" within s.45(1)(b) FA 2003 (a "transfer of rights"); (ii) whether the deemed secondary contract under s.45(3) carried only the £100 option premium as its consideration; and (iii) whether the secondary contract was substantially performed so as to trigger the tailpiece to s.45(3).

Issues framed by the court.

• Does an unexercised option give the transferee a present entitlement to call for a conveyance within s.45(1)(b)?
• If s.45 applies, how should the deemed consideration in s.45(3)(b)(i)-(ii) be construed and when (if at all) is there substantial performance of the secondary contract?
• Alternatively, does the anti-avoidance provision s.75A FA 2003 defeat the scheme? (HMRC advanced this point below and before the court as an alternative.)

Court’s reasoning and conclusion. The court applied established principles of purposive statutory interpretation and the authorities on deeming provisions. It held that s.45 operates as a modification of s.44 and is intended to address cases where a subsale or assignment results in a third party effectively acquiring the land in substitution for the original purchaser. For s.45 to apply the transferee must have a present entitlement to call for a conveyance at the relevant time (the date on which completion or substantial performance occurs under s.44). A mere option, until exercised, creates only a contingent future entitlement and therefore does not satisfy s.45(1)(b). Applying that construction made it unnecessary to decide the remaining issues on s.45(3)(b) and s.75A. The appeal was dismissed.

Appeal dismissed. The Court of Appeal held that section 45 FA 2003, which modifies section 44, applies only where the transferee has a present entitlement to call for a conveyance (for example on a subsale or assignment that substitutes a purchaser), and that an unexercised option does not give such a present entitlement. Consequently s.45 did not apply to relieve the appellant from SDLT and the appeal was dismissed; the court did not need to decide alternative points on s.45(3) or s.75A.

First-tier Tribunal: Judge Victoria Nicholl, decision [2020] UKFTT 0292 (TC) (appeal dismissed). Upper Tribunal (Tax and Chancery Chamber): Miles J and Judge Jonathan Richards, [2022] UKUT 21 (TCC) (appeal dismissed). Permission to appeal to the Court of Appeal was granted in part by Asplin LJ. The present judgment is [2023] EWCA Civ 263.