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It would be the person disposing of the subject-matter of the transaction: see section 43(4). Ratio |
In the context of a purchase effected (as here) by a Land Registry Transfer, it would be the transferor under that transfer. Ratio |
In the present case, but for the matter I am about to describe, that would have been PBL. Ratio |
But where, as here, the purchase by the institution takes place under a contract by way of a sub-sale to which section 45(1) applies, then the institution is not treated as having entered a land transaction at all by virtue of that purchase, let alone a chargeable land transaction: see section 45(2). Ratio |
This is because the agreement to purchase is a transfer of rights within the meaning of the last sentence of section 45(1) and the institution is the transferee. Ratio |
The ordinary consequence of the completion of that purchase laid down by section 44(3) (namely that the contract and its completion is treated as a single land transaction) is displaced by section 45(2) and (3). Ratio |
The contract is replaced by the statutory construct called a secondary contract under which the transferee institution is the purchaser, but the vendor is not identified. Ratio |
The secondary contract is not, on its own, a land transaction but, when it is completed by a conveyance, the secondary contract and its completion are together treated as a land transaction: see again section 44(3). Ratio |
I will call it, for short, the completed secondary contract. Ratio |
The identity of the vendor under that land transaction, wherever it matters elsewhere in Part 4, is regulated by section 45(5A)(b). Ratio |
The reference to the vendor in section 71A(2) is plainly within the contemplation of the phrase other references in this Part to the vendor in section 45(5A)(b). Ratio |
Thus, where there is a sub-sale, the vendor under section 71A(2) is either the vendor under the original contract (here MOD) or the transferor under the transfer of rights (here PBL), depending on the context. Ratio |
The relevant context, for present purposes, is a sub-sale under section 43, coupled with an Ijara finance structure compliant with section 71A(1), and the determination whether exemption is to be available under section 71A(2) for the completed secondary contract. Ratio |
In this context it is plain that this is the relevant land transaction, by analogy with the reference in the tail-piece to section 45(3) to exemption in section 73(3). Ratio |
It speaks of a case where the secondary contract gives rise to a land transaction that is exempt from charge by virtue of subsection (3) of section 73. Ratio |
That section exempts another kind of alternative finance structure. Ratio |
In a section 45 context, the scheme of Part 4 treats the alternative contract, rather than the real world contract which it replaces, as giving rise to the land transaction qualifying (or not qualifying as the case may be) for exemption under section 73. Ratio |
The same must be true of section 71A, which confers exemption in a very similar way. Ratio |
So, what choice, as between MOD and PBL is permitted by this context? There are considerations which may be said to pull both ways. Ratio |
In favour of PBL is the fact that it was the vendor under the real world contract by which MAR agreed to buy the Barracks, and the transferor under the Land Registry transfer by which the freehold interest was actually transferred to MAR. Ratio |
In favour of MOD is the fact that, if the completion of the original contract between MOD and PBL is to be disregarded under section 45(3), then PBL never received from MOD the chargeable interest which is deemed to be transferred to MAR by the completion of the secondary contract. Ratio |
Thus the person disposing of that chargeable interest (the subject matter of the transaction under section 43(4)) can only have been MOD, so that MOD is the only candidate as vendor in this context, under section 45(5A). Ratio |
The first of these considerations persuaded the Upper Tribunal, where the issue first arose for decision. Ratio |
The second persuaded the Court of Appeal. Ratio |
In this court the main battle between counsel has centred on the question whether the relevant context is one which calls to be resolved by a real world or an SDLT-world analysis. Ratio |
In my view neither of those ways of looking at the matter is decisively better than the other. Ratio |
The issue arises precisely at the point where the two worlds collide. Ratio |
Treating either MOD or PBL as vendor may loosely be said to be permitted by the context, if the contest is simply between those parallel worlds. Ratio |
Section 71A(1) sets out what appear to be real world conditions for the exemption of Ijara finance structures from SDLT. Ratio |
But the land transaction which either is or is not to be exempted by section 71A(2) is a pure SDLT construct, namely that notional land transaction to which the secondary contract imposed by section 43 gives rise. Ratio |
But there cannot be two vendors, nor is the taxpayer or HMRC free to choose between two available permitted candidates. Ratio |
The application of section 45(5A) to the context of section 71A(2) must produce a single answer in each case, although the context will not always lead to the same result. Ratio |
In my opinion there is a much more powerful third factor which provides a decisive answer to that question, namely an appreciation of the consequences. Ratio |
If the vendor is to be PBL then, subject only to section 75A, the combined sub-sale and Ijara financing means that the whole transactional structure by which Chelsea Barracks was purchased from MOD is exempted from SDLT. Ratio |
By contrast, if MOD is to be the vendor, there is a single charge to SDLT. Ratio |
The first outcome cannot have been one which Parliament intended. Ratio |
The second outcome accords with the overall purpose of Part 4 to charge SDLT on purchases of land in the UK, with the avoidance of double taxation on a sub-sale, and with the general objective of section 71A, namely to exempt those who use Sharia compliant alternative finance from incurring SDLT where finance by a loan... |
A choice, under section 45(5A) which, in this context, produces an unintended tax holiday for all the participants in the purchase, viewed as a whole, is simply not one permitted by the context, where the alternative choice produces a result broadly in accordance with the purpose of the legislation. Ratio |
I must now address some of the contrary arguments. Ratio |
The first is that a statutory requirement to have regard to the context does not permit regard to be had to the consequences. Ratio |
I respectfully disagree. Ratio |
A hallmark of the modern contextual approach to the construction of a contract is that a choice which produces a result which the parties cannot have intended is to be rejected if there is a less unsatisfactory alternative. Ratio |
I can see no reason why the same approach is inapplicable to the construction of a statute. Ratio |
On the contrary it is frequently used: see Bennion on Statutory Interpretation, section 9.6, In re British Concrete Pipe Associations Agreement [1983] 1 All ER 203, per Sir John Donaldson MR at p 205 and, in the context of a taxing statute, Fry v Inland Revenue Comrs [1959] Ch 86, per Romer LJ at p 105. Ratio |
The only distinction in the present case is that the need to make a contextual choice is expressly required by the plain meaning of the statute itself, namely section 45(5A)(b). Ratio |
But that is a distinction without a difference. Ratio |
The second, and main, argument is that section 71A itself commands a real- world approach to the identification of the vendor, because the transaction looking for a vendor in subsection (2) is the first transaction described in real world terms by subsection (1)(a). Ratio |
Since it is the same first transaction which is exempted by subsection (2) then any issue as to the satisfaction of the vendor condition must be addressed by a real world test as to who is the vendor, treating the first transaction as the real world sale by PBL to MAR, not the notional land transaction to which the sec... |
This argument treats section 45(5A) as not being engaged at all, because it is not the completed secondary contract that is looking for a vendor. Ratio |
This is the argument which has persuaded Lord Hodge. Ratio |
I agree that both subsections (1)(a) and (2) describe the same transaction. Ratio |
That is the clear purpose of linking them by a common definition. Ratio |
But in my view the use of that link works the other way. Ratio |
Subsection (2) is plainly designed, and is only of any use, to exempt from tax land transactions which would otherwise be chargeable to SDLT. Ratio |
Usually they will be real world transactions but, in the present case because of the sub-sale, the relevant land transaction is a statutory construct, namely the completed secondary contract. Ratio |
If subsection (2) is not dealing with that land transaction, but some different transaction, then it simply misses its target altogether. Ratio |
If that is right, then the effect of the linking definition is that section 71A(1)(a) must also be dealing in this context with the completed secondary contract, if its language will bear that construction. Ratio |
There is nothing in the language of section 71A(1) which makes subsection (1)(a) inapposite as a reference to the completed secondary contract, where that is what section 45 requires. Ratio |
Subsection (1) speaks of arrangements under which certain transactions take place. Ratio |
Where (as here) the relevant arrangements include provision for a simultaneous sub-sale, then the first transaction to which SDLT might otherwise be chargeable is necessarily a completed secondary contract. Ratio |
Focus on the very similar language of section 73 is compelling. Ratio |
Section 73(1) also speaks of arrangements under which transactions take place. Ratio |
In fact the second transaction there described always takes place by way of sub-sale (because the same interest is the subject matter of both), so that the second transaction being exempted from charge by section 73(3) will always be a completed secondary contract. Ratio |
And this is what section 45(3) says in unambiguous express terms when it refers to section 73(3). Ratio |
For this real world argument to have real force it would be necessary to re- write section 71A(2) as follows: The first transaction and any land transaction to which a secondary contract gives rise where the first transaction is by way of sub-sale is exempt from charge if the vendor under the first transaction is But i... |
The next argument is that there cannot be a choice of the vendor under the original contract (here MOD) because, where there is a simultaneous sub-sale, the effect of section 45(3) is to disregard the original contract altogether, including its vendor. Ratio |
There are in my view two objections to that argument. Ratio |
The first is that section 45(3) does not require the original contract itself to be disregarded, but only its substantial performance or completion. Ratio |
The contract itself remains visible, together with its vendor. Ratio |
The second more serious objection is that section 45(5A) assumes that the vendor under the original contract remains an available choice, precisely where section 43(3) brings a completed secondary contract into deemed existence, and disregards the performance or completion of the original contract. Ratio |
Indeed it is only where there is a completed (or performed) secondary contract that it was thought necessary to provide a special means for the identification of its vendor. Ratio |
It may be suggested that, under section 45(3), there can be both a completed secondary contract and a performed or completed original contract which is not disregarded, for example where the two are not simultaneous and connected, or where section 73(3) applies, but this is not why section 45(5A) was introduced. Ratio |
Its main target was precisely the unintended potential tax holiday which would arise where there was a sub-sale, because of a disregard of the original completed contract and an exemption for the sub-sale, eg because of the simultaneous potential application of group relief. Ratio |
It is next said that what I have described as the compelling consequences in terms of an unintended tax holiday do not arise, because section 75A comes to the rescue of the public purse. Ratio |
I accept that, if need be, it does so on the facts of this case, which occurred after it came into force. Ratio |
But 20 months passed between the introduction of section 45(5A) and section 75A, during which, if facts such as these did give rise to a tax holiday, the Revenue was entirely unprotected. Ratio |
There are in my view powerful reasons why the construction and application of section 45(5A) should be undertaken without reference to the fact that, much later, section 75A floated into view, as a plank in a shipwreck. Ratio |
First, the exercise of construction and application of section 45(5A) ought to be based upon a perception of the intention of Parliament when enacting it. Ratio |
That is, by the same token, why the re-casting of section 45(3) in 2011, in a way that solved the present difficulties by removing the disregard of the completed original contract where the sub-sale was exempted by section 71A, cannot be prayed in aid in interpreting section 45 in its earlier form. Ratio |
Secondly, the impetus for enacting section 75A was not a perception that sections 45(3) and 71A, working together, produced a tax holiday. Ratio |
Section 75A was, by its title, primarily designed to deal with tax avoidance schemes, although I accept that it was cast in wide enough terms to provide the Revenue with a rescue from the tax holiday to which linking Ijara finance to a sub-sale might give rise. Ratio |
Thirdly it is counter-intuitive, to say the least, to adopt a construction and application of section 45(5A) which then gives rise to a further set of difficulties in the application of section 75A, when there is an alternative approach that does nothing of the kind. Ratio |
This is, in my view, an a fortiori case where section 45(5A) expressly requires that choice to be made. Ratio |
Fourthly, if a construction of sections 45(5A) and 71A(2) before the introduction of section 75A does not produce an unintended tax holiday, then there is no reason why the earlier sections need be re-interpreted in the light of section 75A. Ratio |
A rather different and more detailed objection to the identification of MOD as the vendor under section 71A(2) is that its effect is to charge the wrong taxpayer with the wrong amount of tax. Ratio |
By this the proponents mean that the policy objectives of a single charge to tax, based upon the real purchase price for the Barracks, with Ijara structures being altogether exempt, would only truly be satisfied if PBL rather than MAR was liable, and SDLT was payable as a percentage of the price paid to MOD, rather tha... |
This is precisely what the amendments to section 45 made in 2011 now do achieve. Ratio |
Even the section 75A solution charges the right taxpayer, albeit still with the wrong amount of tax. Ratio |
This objection has significant force at first sight but there are compensating matters which in my view largely deflate its effect. Ratio |
Dealing first with the identity of the taxpayer, an ordinary Ijara structure to finance a purchase imposes SDLT on the bank rather than on the customer. Ratio |
This is because the first relevant land transaction is a purchase by the bank from the third party seller. Ratio |
Section 71A(2) does not apply because the vendor is not the customer. Ratio |
There is no sub-sale, because (as is common ground) a purchase followed by a lease does not trigger section 45. Ratio |
In commercial reality, (as in the present case) the customer ends up footing the tax bill, because the bank takes a tax indemnity from the customer. Ratio |
The Ijara structure to which the exemption in section 71A(2) typically applies is a re-finance by a customer who has already purchased the property and paid SDLT on completion. Ratio |
There is, again, no sub-sale. Ratio |
An interpretation and application of section 45(5A) in a sub-sale context so as to charge SDLT on the bank therefore imposes the same consequence of taxing the bank as does an ordinary Ijara structure to finance a purchase where there is no sub-sale. Ratio |
In both cases, the usual tax indemnity imposes the ultimate tax burden on the customer. Ratio |
In the present case the evidence suggests that the sub-sale route was chosen because MOD decided to use a sealed bid process in which MAR would have found it difficult to participate, and because MOD wanted a delayed completion, while it re-billeted the troops in the Barracks. Ratio |
These are relatively unusual fact-specific matters which ought not to affect the issues of construction. Ratio |
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