Tribunal holds Chelsea Barracks purchaser to account over avoidance

A tax tribunal has upheld a legal ruling against a Stamp Duty Land Tax (SDLT) avoidance scheme, protecting up to £123 million in tax.

Scheme user Project Blue Ltd had appealed against an earlier First Tier Tribunal (FTT) decision relating to its purchase of the Chelsea Barracks in London. This appeal has now been rejected by the Upper Tribunal (UT).

The SDLT sub-sale alternative finance scheme was used in an attempt to eliminate all of the SDLT due on the purchase of the barracks.

The Upper Tribunal has decided Project Blue must pay £38 million in SDLT that would have been due if it hadn’t used the scheme.

The decision also affects 24 similar commercial cases and similar avoidance schemes with around 900 users, protecting another £85 million in tax.

This important case is the first to test a targeted anti-avoidance rule in the SDLT legislation.

David Gauke, Financial Secretary to the Treasury, said:

“HMRC’s position in this important case has now been backed twice by the courts. The message is clear – tax avoidance is complex, expensive and self-defeating.

“We continue to crack down on both avoidance and evasion – last year HMRC’s compliance activity brought in £23.9 billion.”

Notes for Editors

  
1. Chelsea Barracks was sold to Project Blue Ltd in January 2008 when the company was owned jointly by the Qatari Government and CPC Group. The company is now solely owned by the Qatari Government.
 
2. The SDLT legislation removes tax obstacles to alternative property finance transactions (which includes Islamic finance transactions) to ensure that they aren’t taxed more than conventional loans. Anyone who uses alternative finance in a way which Parliament intended has no cause   to fear an additional tax charge. But, in this case, the transactions were combined with others in a complex tax avoidance scheme designed to ensure that no tax was payable at all.
 
3. Project Blue Ltd had previously argued that the transactions had been carried out for commercial reasons and not to avoid tax. However, the FTT ruled that the company had failed “to put forward evidence of all the factors that may have been taken into account” and failed to establish that tax avoidance was not a factor in their decision to proceed.The UT held that whether Project Blue Ltd intended to avoid tax was irrelevant.
 
4. The FTT decision is available at http://www.bailii.org/uk/cases/UKFTT/TC/2013/TC02777.html
 
5. The UT decision is available on request.
 
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