The Supreme Court judgement in Project Blue has been eagerly awaited. Whilst the detail of the case is largely of historic interest, it has provided guidance on the scope of the broad SDLT anti-avoidance rule in section 75A Finance Act 2003.
The case related to sale of the Chelsea Barracks by the MOD in 2008 and the structure used by the buyer to acquire it. The acquisition structure used a combination of what used to be called "sub-sale" relief and rules intended to facilitate Sharia compliant financing, the effect of which (the taxpayer contended) did not give rise to an SDLT charge. The Supreme Court accepted that the combination of these reliefs on their own did indeed avoid an SDLT charge – with the result that a lacuna in the law did exist in the early years of SDLT. This point is of historic interest now as these rules have been amended, and in the case of sub-sale relief, completely rewritten. However, the SDLT anti-avoidance rule (section 75A) came into force in December 2006, and so the Supreme Court had to consider its application to this case.
The Supreme Court reiterated the point that taxing statutes had to be interpreted "purposively" – i.e. the Court's job was to try to find the intention of Parliament and construe the legislation in accordance with that, noting that a purposive construction would not always operate in favour of HMRC. It accepted that section 75A "was difficult to interpret and to apply to particular transactions…" but concluded that it had been enacted "in broad terms to catch a range of tax avoidance schemes and prevent unintended tax losses by the use…of a combination of reliefs and exemptions". It did not matter that there was not an express "avoidance" motive – the mere fact that less SDLT was paid when compared with a straightforward sale would be sufficient to bring the section into play.
The court concluded that in the "real world" the buyer had acquired the barracks with the benefit of financing provided by a third party. It was therefore appropriate for the target of section 75A (whom the legislation refers to as "P") to be the buyer, rather than the person providing the finance. Further, SDLT was due by reference to the "highest amount" payable for any of the "scheme transactions" – which the court held was the amount of the financing provided by the third party. This finance was in excess of the actual purchase price of the property (£1.25bn rather than £959m) – albeit the court agreed that the buyer may have a claim for a refund of the SDLT on the difference between these two figures.
In summary, this was a comprehensive win for HMRC. The worry for taxpayers is that HMRC could seek to use section 75A in any instance where there are a series of transactions and it considers that the "right" amount of tax has not been paid. On the other hand, it is hoped that HMRC will take a common-sense approach and only seek to invoke section 75A where there is what it considers to be more aggressive tax avoidance, or where there would be an SDLT-free lacuna otherwise, as was the case here.