Michael Brown & Anor v The Commissioners for HMRC

SDLT provisions, including tightly defined land-law concepts, are subject to a purposive interpretation. The court identifies the statutory purpose and the class of facts intended to be caught, then asks whether the scheme answers the statutory description. A pre-ordained avoidance scheme is assessed as a whole and in the round. Under section 45(3)(b)(i) of the Finance Act 2003, funds supplied to a controlled company solely to acquire and transfer an identified property may be consideration indirectly given by the ultimate purchaser. The question is fact-sensitive. A connected-company analysis may produce the same result. A deeming provision under section 75A does not erase real-world events for every purpose, and an HMRC determination identifying the acquisition, property and date may support any legal analysis that justifies the tax.

Mr and Mrs Brown used a marketed scheme under which an unlimited company acquired a house and immediately transferred it to them by way of a distribution in specie. The scheme relied on sub-sale relief under section 45 of the Finance Act 2003 and claimed to avoid SDLT.

HMRC determined SDLT on the acquisition. The First-tier Tribunal and the Upper Tribunal rejected the scheme, for different reasons. The Upper Tribunal’s decision is reported at [2022] UKUT 00298 (UT) and [2023] 4 WLR 11. The appeal concerned whether the purchase price was consideration indirectly given by the appellants, whether the company’s connected-person status provided an alternative basis, and whether HMRC’s determination was within scope if section 75A applied.

1. Appeal dismissed. The scheme did not avoid SDLT, and HMRC’s determination was upheld.
2. Purposive interpretation. The SDLT code in Part 4 of the Finance Act 2003 is subject to the ordinary purposive approach. Following Rossendale BC v Hurstwood Properties (A) Ltd [2021] UKSC 16, [2022] AC 690, the court must identify the statutory purpose and the class of facts intended to be affected, then ask whether the facts answer the statutory description. Pre-ordained tax-avoidance schemes must be considered as a whole and in the round. Mayes v HMRC [2011] EWCA Civ 407, [2011] STC 1269, concerned different legislation and did not dictate the result.
3. Section 45. Section 45 created a notional secondary contract between the original vendor and the ultimate purchasers. Under section 45(3)(b)(i), read with Schedule 4 paragraph 1, the purchase price was consideration indirectly given by the appellants. They supplied funds to a controlled vehicle solely to purchase an identified property, with the planned result that the property would be vested in them on completion. Whether consideration is indirectly given is fact-sensitive and is not confined to contractual liability or payment mechanics.
4. Connected person and new point. Alternatively, the company was connected with the appellants, so its payment under the original contract was chargeable consideration under section 45(3)(b)(i). HMRC were entitled to raise this pure point of law in a Respondent’s Notice because it had been raised and argued before the Upper Tribunal. Even if permission had been required, it would have been granted because there was no prejudice or need for further fact-finding. The court relied on Braceurself Ltd v NHS England [2023] EWCA Civ 837, [2024] 1 WLR 669, and Bahamas International Trust Co Ltd v Threadgold [1974] 1 WLR 1514.
5. Section 75A and the determination. Section 75A was applicable in principle and replaced the scheme land transactions with a notional acquisition for the purposes of Part 4 and calculating SDLT. The deeming provision did not require the real-world acquisition to be ignored for every purpose. Applying the approach in Fowler v HMRC [2020] UKSC 22, [2020] 1 WLR 2227, and related authorities, the determination was within scope because it identified the acquisition, property and date but contained no prescriptive legal analysis. HMRC could therefore advance any legal analysis supporting the tax determined.

• Court of Appeal (Civil Division) dismissed the appeal.
• Upper Tribunal (Tax and Chancery Chamber) held that the SDLT scheme failed, concluding that the purchase price was consideration indirectly given under section 45(3)(b)(i) of the Finance Act 2003: [2022] UKUT 00298 (UT); [2023] 4 WLR 11.
• First-tier Tribunal also concluded that the scheme failed, but for a different reason.