High Court gives stamp of approval to retrospective anti-avoidance legislation

27 June 2014

A challenge to the lawfulness of the retrospective effect of legislation amending section 45, Finance Act 2003 ('FA 2003'), fell at the first hurdle in a recent application for judicial review heard by Mrs Justice Andrews in R (on the application of St Matthews (West) Ltd and others) v HMRC [2014] EWHC 1848 (Admin).

The claimants had entered into an arrangement which was intended to mitigate their liability to stamp duty land tax ('SDLT'). The arrangement had sought to take advantage of sub-sale relief under section 45, FA 2003.


Following an announcement in the 2012 Budget that the government would introduce retrospective legislation to counter SDLT avoidance arrangements, the government introduced provisions in Finance Bill 2013 which were ultimately contained in section 194 FA 2013. The provisions were initially targeted at arrangements involving an onward sub-sale which would not be completed for a number of years. However, on 4 June 2013, the government introduced amendments to further amend section 45 FA 2003 to provide that an agreement to grant or assign an option would not constitute a "transfer of rights". These amendments were made as a result of the government becoming aware of tax avoidance arrangements that the claimants had entered into after the 2012 Budget speech. The amended section 45, including the additional amendments made on 4 June 2013, applied retrospectively to transactions entered into on or after 21 March 2012.

As part of the 2011 Budget, a protocol on unscheduled announcements of changes in tax law was also published by the government (the 'Protocol'). The Protocol broadly stipulated that retrospective changes to legislation to tackle tax avoidance "will be wholly exceptional" and normally would only be made where there was "a significant risk to the Exchequer which only an immediate change in the law could address".

The claimants' contentions

The claimants contended that the amendment introduced on 4 June 2013, infringed both Article 1, Protocol 1 ("Article 1") (right to peaceful enjoyment of property) and Article 6 (right to a fair trial) of the European Convention of Human Rights ('ECHR') and applied for permission to bring a judicial review.

The claimants contended that the retrospective effect of section 194 FA 2013 breached Article 1 as it deprived them of the money they would have to hand over to the Exchequer in payment of the SDLT which would not otherwise have been payable. They also argued that it breached Article 6 as it deprived them of being able to defend their claim before the Tribunal.

The Court's decision

The Court disagreed with the claimants and held that neither Article 1 or 6 was engaged.

Article 1

The Court considered in some detail arguments about whether Article 1 was engaged, in particular, the case of R (Huitson) v HMRC [2011] EWCA Civ 893 was carefully considered. The Court concluded that section 194 FA 2003 did not impose a liability on the claimants to make a payment of tax, rather, the provisions deprived the claimants of any argument that they were not liable to pay the tax, or of a defence to HMRC's claim. A legal argument, whatever its merits is not a "possession" for the purposes of Article 1. Accordingly, the Court concluded that Article 1 was not engaged.  

The Judge went on to consider whether the amendments to section 194 FA 2013, would have infringed Article 1 had that Article been engaged. Domestic legislation would not infringe Article 1 if it was lawful and proportionate. The Court considered that the amendments to section 194 introduced on 4 June 2013 were lawful and were not arbitrary. While the amendments were not announced in the 2013 Budget, it was clear from the government's announcement in the 2012 Budget that it was highly likely that retrospective legislation would be introduced to counter any SDLT avoidance arrangements which the government became aware of.

The Court dismissed the claimants' argument that as only £7million of tax was at stake, it could not be said that there was a "significant risk to the Exchequer" and therefore the government failed to comply with the Protocol making the retrospective nature of the legislation insufficiently foreseeable and arbitrary.

In the view of the Court, given clear government statements demonstrating its determination to curb SDLT avoidance and its warning that retrospective legislation might be used, the introduction of the measures objected to was foreseeable. Also there was nothing arbitrary about the measures. The amendments were part and parcel of the overall package of measures designed to curb avoidance based on the abuse of the sub-sale relief. The measures were also, in the Court's view, proportionate.

Article 6

The Judge agreed with Simon J in R (ToTel Ltd) v First-tier Tribunal (Tax Chamber) [2011] EWHC 652 (Admin), that on the basis of the Strasbourg jurisprudence, Article 6 was not engaged in a case such as the present one. Again, the Judge considered the position if, contrary to her analysis, Article 6 was engaged. The Judge concluded that:

"there is little difficulty in reaching the conclusion that the legislation easily satisfies the higher test of compelling grounds in the public interest. The interference with the Claimants' rights to air their arguments as to the effectiveness of this artificial tax avoidance scheme was proportionate and justified for … the reasons … already given for reaching that conclusion in respect of A1P1. It was equally compelling justification for retrospective legislation that it would have the desirable effect that the relevant provisions of the FA 2003 would operate in the manner that Parliament originally intended …".

Accordingly, in the view of the Judge, the claimants had not established that their arguments had any real prospect of success and she therefore refused to give permission for the application for judicial review to proceed.


It remains to be seen whether the claimants' will seek permission to appeal against this decision. Although the case highlights the high threshold that will be faced by any applicant bringing a challenge, by way of judicial review, to retrospective anti -avoidance legislation, the judgment is not a green light for retrospective legislation generally. The case concerned legislation which was introduced to counter what was perceived by the government to be an artificial avoidance scheme. The Judge also emphasised the clear and specific warnings given to taxpayers that retrospective legislation to counter SDLT avoidance schemes was a realistic prospect.

The government is of course about to introduce further retrospective legislation in relation to 'follower notices' and 'accelerated payments notices'. Any challenge to these provisions by way of judicial review is likely to focus not only on the retroactive effect of the provisions but also on other aspects of the regime, such as the lack of a right of appeal against the issue of such notices. It will be interesting to see what view the courts take of these provisions.

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