Is it still tax avoidance when you don’t get a tax benefit?

In a recent Upper Tribunal (UT) case, The Tower One St George Wharf Limited had submitted a claim for stamp duty land tax (SDLT) group relief on the acquisition of a 999-year lease of a residential property development site from another company within the group.

If a claim for SDLT group relief is valid, a transfer of property between group companies does not attract an SDLT charge. There are a number of conditions to be met for a group relief claim to be valid as well as clawback provisions. One of these conditions is that the transaction cannot form “part of arrangements of which the main purpose, or one of the main purposes, is the avoidance of liability to tax.”

Although it could be argued that the commercial rationale behind the acquisition of the lease was to ringfence the risks of the development within a separate company, tax planning had been implemented to effect the transaction, following a step plan prepared by their advisers. These steps were intended to uplift the base cost figure of the lease, reducing the corporation tax liability that might potentially arise on its subsequent disposal to a third party. HMRC challenged this and it was accepted that the steps undertaken did not result in an uplift in the base cost. Therefore, the tax planning did not benefit the company as it had originally intended.

The First-tier Tribunal (FTT) found that the SDLT group relief conditions were not met as the steps undertaken had a clear tax avoidance purpose. When this decision was appealed to the UT, it also agreed with this conclusion.

What is interesting here is the importance of the intention behind any arrangements or steps in place which could give rise to a tax benefit. Despite the company not benefiting from the uplift in base cost it had originally envisioned, these steps still indicated an intention to avoid tax, therefore resulting in the SDLT group relief claim conditions not being met.

A difficult lesson for Tower One to learn, as the tribunal found that this meant an additional SDLT liability of £8m.