Analysis
The Pollen Estate Trustee Company (PETCL) held various London properties on trust for the beneficiaries of the Pollen Estate Trust (PET). Two of the beneficiaries of the PET were charities, being the Church Commissioners and Greenwich Hospital. From time to time PETCL bought and sold property. The appeal concerned four properties bought by PETCL on behalf of the PET between 2006 and 2008.
KCL is a charity. It operates a shared equity scheme under which it participates in the acquisition of homes for its employees in return for a share in the equity in the property proportionate to its contribution. In the present case the property in question was a flat bought by one Professor Trembath. As part of the purchase arrangements Professor Trembath executed a deed of trust under which he declared that he held the flat as to 46.3% for himself and 53.7% for KCL.
The decision of the Upper Tribunal on the transactions in question was to the effect that if a charity bought property for its charitable purposes or for investment it was entitled to relief from SDLT. The same applied if a non-charity bought property as bare trustee for a charity. However, if the non-charity has any beneficial interest at all in the property then the charity is not entitled to any relief from SDLT, even in respect of its share of the beneficial interest in the property.
This decision was appealed on two grounds:
(1) that the Upper Tribunal had identified the wrong interest in land as the basis for the charge; and
(2) that the Upper Tribunal had adopted an unduly literal interpretation of the relieving provision applicable to acquisitions by charities.
The appellants argued that SDLT focused on what has been acquired and therefore the chargeable interest must be considered from the perspective of the acquirer. In this case, the appellants argued, the what had been acquired were the charities’ respective undivided shares in land and those acquisitions must be treated as separate land transactions for SDLT. HMRC argued that if this analysis applied it would subvert the way that SDLT treated joint acquisitions, giving the result that where multiple parties participated in the purchase of a property where the value of their individual shares were below the SDLT threshold, no SDLT would become payable, even though the total value of the property exceeded that threshold. The question for the court to decide was therefore whether or not the relevant chargeable interest was either:
(1) the entire equitable estate in the land acquired collectively by the beneficiaries under a bare trust; or
(2) the undivided shares individually acquired by those beneficiaries.
In relation to the second ground, the relevant statutory provision was Sch 8 para 1 of the Finance Act 2003. The appellants contended that it had been given too literal an interpretation.
Held:
(1) The starting point was that a conveyance to two or more persons must take effect as a trust of land (Law of Property Act 1925, ss34 and 36). On exchange the trustees acquire collectively the entire equitable estate in the land. As a consequence of Sch 16 para 3 of the Finance Act 2003 that estate is deemed to be vested in the beneficiaries. The equitable estate thus acquired is therefore both a major and a chargeable interest for SDLT (as defined by ss48(1) and 117(2) Finance Act 2003 respectively). Whether the beneficiaries are joint tenants or tenants in common in equity, they are for SDLT purposes ‘jointly entitled’ to the equitable estate in the land within the meaning of s121 Finance Act 2003. The effect of the deeming provision is that the beneficiaries are taken to have acquired that which the trustees have acquired and that interest is the entire equitable estate in the land. Therefore the ‘subject matter’ of the transaction for s43(6) Finance Act 2003 is identified in relation to the equitable estate which has been collectively acquired. The chargeable consideration is the consideration given for that estate and it is that consideration on which SDLT is levied. The Upper Tribunal had correctly identified the chargeable interest in land.
(2) Schedule 8 para 1 of the Finance Act 2003 had been unduly literally construed by the Upper Tribunal. The favoured reading of para 1(1) was ‘a land transaction is exempt from charge [to the extent that] the purchaser is a charity and the following conditions are met.’ Therefore the land transaction would be partially exempt but only to the extent of the charity’s interest. There was sufficient policy imperative to justify this reading. It was necessary to give effect to what must have been Parliament’s intention in relation to the taxation of charities. The appeal was allowed on the ground that Sch 8 para 1 should be interpreted in this way.
JUDGMENT LORD JUSTICE LEWISON: Introduction [1] If a charity acquires property in furtherance of its charitable purposes, or as an investment, it is entitled to relief against liability to pay stamp duty land tax (SDLT) on the purchase price. The same applies if a non-charity buys the property as bare trustee for the charity. But …Continue reading "The Pollen Estate Trustee Co Ltd & anr v HMRC [2013] EWCA Civ 753"