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

Under the Finance Act 2003, the Case 3 exception to the market-value rule is aimed at preventing distributions from sidestepping group-relief clawback. A prior transaction engages the proviso only where group relief was actually obtained; an invalid, unsuccessful or withdrawn claim is insufficient. The three-year period includes transactions earlier on the effective date, despite the drafting gap. Under section 75A, a notional transaction is tested with the actual circumstances at the effective date, and relief remains subject to its statutory restrictions. A transaction forming part of the process transferring the interest is not merely incidental, and consideration received by connected persons may be aggregated.

The appellant transferred a long lease of a residential development within a connected company group. The transfer consideration was substantially below market value. The appellant originally claimed group relief but no longer pursued that contention after the First-tier Tribunal and Upper Tribunal rejected it.

The First-tier Tribunal dismissed the appeal: [2022] UKFTT 00154 (TC). The Upper Tribunal upheld that decision: [2024] UKUT 00373 (TCC). Before the Court of Appeal, the appellant argued that the Case 3 exception in section 54(4) applied. HMRC relied alternatively on section 75A. The central issues were whether an ineffective group-relief claim engaged the section 54(4)(b) proviso, whether transactions earlier on the same date were within the three-year period, and whether section 75A applied.

1. Ground 1 allowed, but appeal dismissed overall. The Case 3 exception in section 54(4) applied because the earlier group-relief claim had not in fact resulted in group relief being obtained. The proviso is directed at preventing a distribution from sidestepping the three-year clawback in Schedule 7. It does not apply merely because an invalid, unsuccessful or withdrawn claim was made. The statutory language was construed purposively in context.
2. Ground 2. The three-year period in section 54(4)(b) includes transactions occurring earlier on the effective date. A literal reading would create an irrational gap. The court could correct the obvious drafting error under the principles in Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586. This conclusion was unnecessary to the result but was given because of its broader relevance.
3. Section 75A. The provision applied. Its statutory fiction had to be taken sufficiently far to give effect to its purpose, but not so far as to create an unjust or anomalous result. The actual circumstances and purposes existing at the effective date remained relevant. The notional transaction was therefore not cleansed of the actual corporation-tax avoidance purpose, and group relief was unavailable under paragraph 2(4A)(b) of Schedule 7.
4. The trustee deeming provision in paragraph 3(4) of Schedule 16 treated SGSL as vendor for SDLT purposes, but did not deem it to be beneficial owner or to have distributed assets which were not available to it as bare trustee. The Case 3 exception therefore did not prevent section 53 from applying to the notional transaction.
5. The share sale was a scheme transaction because the words “in connection with” in section 75A(1)(b) were broad. It was not merely incidental under section 75B because it formed part of the process by which the lease was transferred. Under section 75A(5)(b), consideration received by the vendor, connected persons, or both could be aggregated. The section 75A(1)(c) condition was consequently satisfied. The appeal was dismissed.

1. Court of Appeal (Civil Division): Ground 1 allowed, but the appeal dismissed because section 75A applied.
2. Upper Tribunal (Tax and Chancery Chamber): dismissed the appeal from the First-tier Tribunal: [2024] UKUT 00373 (TCC).
3. First-tier Tribunal (Tax): dismissed the appeal against the SDLT assessment: [2022] UKFTT 00154 (TC).