The Tower One St George Wharf Limited v The Commissioners for HMRC

Group relief under Schedule 7 to the Finance Act 2003 is unavailable where a land transaction forms part of arrangements having tax avoidance as one of their main purposes. The question is determined by the arrangements’ purposes at the time of the transaction. A purpose remains a purpose although the intended tax advantage is unavailable or unrealised.

Purpose is a factual inquiry into the relevant actors’ subjective objectives, assessed from all the evidence. It is distinct from an effect, but an intended tax advantage may be a purpose. More than one purpose may be main: a tax purpose need not be the sole, predominant, or independently sufficient reason for entering the arrangements.

The Case 3 exception to the deemed market value rule does not apply where the relevant interest was transferred earlier on the same day in a transaction for which the vendor claimed group relief. The three-year look-back includes transactions immediately preceding the later transaction.

The Tower One St George Wharf Limited acquired a 999-year lease of a residential development from B64, another company in the Berkeley group, for about £30 million. The transfer was one step in a planned series of transactions intended both to place the development in a special-purpose vehicle and to obtain a tax-free increase in its carrying value to £200 million.

The First-tier Tribunal dismissed the company’s appeal against an SDLT assessment. It held that group relief was unavailable because one main purpose of the arrangements was tax avoidance. It also held that SDLT was chargeable by reference to market value because the Case 3 exception to the deemed market value rule did not apply: The Tower One St George Wharf Limited v HMRC [2022] UKFTT 00154 (TC).

The Upper Tribunal considered whether those conclusions disclosed errors of law.

1. Appeal dismissed. The First-tier Tribunal made no error of law in denying group relief under paragraph 2(4A) of Schedule 7 to the Finance Act 2003.

2. The statutory restriction is concerned with the purpose of the arrangements at the time of the land transaction. It does not require the tax-avoidance purpose to succeed. The fact that the anticipated corporation-tax benefit was ultimately unavailable did not retrospectively remove that purpose. Nor does the language exclude a purpose of avoiding a future or contingent tax liability. On the findings, the arrangements were intended to give Tower One a market-value base cost without a group company incurring tax on the latent gain.

3. Purpose required an inquiry into the relevant decision-makers’ subjective objectives, assessed by the tribunal from all the evidence. Purpose must be distinguished from effect, but an intended consequence may evidence a purpose. The First-tier Tribunal permissibly relied on the bespoke step plan, detailed implementation, professional advice, and the importance attached to the anticipated tax benefit.

4. A main purpose is a primary and important aim. Arrangements may have more than one main purpose. A tax purpose need not be the most important purpose, nor need it alone have been sufficient to cause the arrangements to be made. The First-tier Tribunal was entitled to find that the tax-free step-up had become a main purpose alongside the commercial objective of transferring the development to a special-purpose vehicle.

5. The First-tier Tribunal also made no error in holding that the Case 3 exception in section 54(4) did not displace the deemed market value rule. Construed purposively, the three-year period immediately preceding the later distribution transaction included the grant of the lease to B64 earlier on the same day. B64 had made a group-relief claim on that earlier transaction and had paid no SDLT. The exception therefore did not apply, and SDLT was chargeable on market value under section 53.

6. It was unnecessary to determine HMRC’s alternative case under section 75A.

• Upper Tribunal (Tax and Chancery Chamber): dismissed Tower One’s appeal and upheld the First-tier Tribunal’s conclusions on group relief and the deemed market value rule: [2024] UKUT 373 (TCC).
• First-tier Tribunal (Tax Chamber): dismissed Tower One’s appeal against the SDLT assessment, holding that group relief was unavailable and that SDLT was chargeable on market value: [2022] UKFTT 00154 (TC).