Tribunal finds for taxpayer in SDLT sub-sale partnership avoidance case

The First-tier Tribunal ('FTT') has ruled in favour of the taxpayer in relation to an SDLT avoidance arrangement that relied on the transfer of rights provisions in section 45 of the Finance Act 2003 and the partnership provisions in paragraph 10 of Schedule 15 to the Finance Act 2003 - DVS3 RS Ltd v HMRC [2011] UKFTT 138.

The scheme involved a sub-sale of property to a partnership (C) in which the intermediate buyer (B) and all the other partners were connected persons for the purposes of what is now section 1122 of the Corporation Tax Act 2010 as modified by paragraph 39 of Schedule 15 to the Finance Act 2003. The contract between the third party seller (A) and B (A/B contract) and the sub-sale contract between B and C (B/C contract) were completed by separate transfers, but contemporaneously. The tribunal ruled that the effect of section 45 was that completion of the A/B contract was disregarded so that no SDLT liability arose on that transaction. However, C's acquisition was from B and, therefore, paragraph 10 of Schedule 15 applied, the effect of which was to subject 0% of the market value of the property to SDLT.

The tribunal rejected HMRC's argument that because section 45 required the A/B contract to be disregarded, B never acquired the property and, therefore, C could not have acquired it from B.