Upper-Tier Tax Tribunal affirms SDLT overpayment relief for rescinded contracts

The Upper-Tier Tribunal’s decision affirms that a claim for overpayment relief from Stamp Duty Land Tax (SDLT) under paragraph 34 of Schedule 10 to the Finance Act 2003 (Paragraph 34) was valid where the taxpayer (who satisfied the conditions under paragraph 34A of the schedule) was out of time to reclaim under Section 44(9) of the Finance Act 2003 (Section 44(9)).
  
Section 44(9) allows a taxpayer to reclaim SDLT on a contract which has been rescinded, but only by amending the SDLT return and paragraph 6 of Schedule 10 to the Finance Act 2003 states that an SDLT return must be amended within 12 months of its filing date. In contrast, a claim under Paragraph 34 must be made by the fourth anniversary of the date of the transaction.

The following events led to the payment of SDLT which was the subject of the claims and the litigation which followed:

1. On 9 August 2012, Christian Candy (CC) entered into two contracts in respect of Gordon House, a residential property in Chelsea, London. The first contract was an agreement for a lease with a term of 25 years over Gordon House (the Initial Lease).  The premium for this lease was £20 million. The parties also entered into an agreement (the Supplemental Deed) which provided for the development of Gordon House. The second contract was an agreement for the assignment of a lease (the Contracted-Out Lease) with a term of 201 years from 1 October 2012. The purchase price for the assignment of the Contracted-Out Lease was £48 million, payable in four instalments. CC paid the first instalment of £7.39 million.
2. The vendors of the above leases and CC structured the purchase of the interest in Gordon House so that the Contracted-Out Lease would not benefit of enfranchisement rights which apply to residential property.
3. The Initial Lease was granted on 1 October 2012, and the Contracted-Out Lease was granted on 16 April 2019.
4. On 10 August 2012, CC’s building contractors entered Gordon House and began the development works.
5. On 8 October 2012, CC paid SDLT on the Initial Lease and the Contracted-Out Lease because substantial performance had occurred.
6. On 1 April 2014, CC gifted his interests over Gordon House to his brother, Nick Candy (NC). On the same date, NC entered into a deed of novation in respect of the Contracted-Out Lease and the Supplemental Deed with the vendors of the property and took possession of the property.
7. NC paid the second and third tranches of the £48 million premium on 1 October 2014 and 1 October 2015.
8. On 10 April 2014, CC applied to HMRC for repayment of the SDLT of £1,920,000 paid on the substantial performance of the Contracted-Out Lease on the basis that this contract had been rescinded by the deed of novation by amending the return under Section 44(9) and by making an alternative claim under Paragraph 34.
9. The claims made by CC were rejected by HMRC. The claim under Section 44(9) was the subject of separate litigation which reached the Court of Appeal and which the taxpayer lost on the basis that an SDLT return could not be amended after the first anniversary of the filing date.

In the current litigation relating to the claim for overpayment relief under Paragraph 34, CC won at the First-Tier Tribunal which held that Paragraph 34 provided a backstop for making claims for the repayment of overpaid SDLT which applied even where other provisions provide a means of reclaiming overpaid SDLT (so long as those provisions were not effective at the time of the claim under Paragraph 34 and subject to meeting the conditions in Paragraph 34A).

HMRC appealed to the Upper-Tier Tribunal. The Upper-Tier Tribunal dismissed HMRC’s appeal and affirmed that a claim for overpaid SDLT can be made under Paragraph 34 where the taxpayer was out of time to make a claim under Section 44(9) (so long as the conditions in Paragraph 34A were satisfied).

Following the Court of Appeal’s decision on the claim under Section 44(9) by CC and the one year time limit to amend a return, a commentator made the point that, arguably, a taxpayer could be better off by submitting an SDLT return late so as not to pay SDLT which could not be reclaimed on rescission. It is not clear whether HMRC will appeal the Upper-Tier Tribunal’s decision to the Court of Appeal. However, if the judgment is not appealed a taxpayer will be able to pay the SDLT on time in the knowledge that they can claim overpayment relief under paragraph 34 of Schedule 10 FA 2003 if the contract is rescinded after the first anniversary of the filing date and before the fourth anniversary of the land transaction, subject to meeting the conditions in paragraph 34A of Schedule 10 FA 2003.