The taxpayer purchased a property from a company, G Ltd, and on the same day entered into an agreement with a third party, T, whereby he granted T an option to purchase the property. The Finance Act 2003 required that stamp duty land tax be paid on the initial transaction at a rate of 5%. However, the taxpayer filed a tax return on the basis that he had no liability as a result of the grant of the option. The revenue disagreed with the taxpayer’s analysis and issued a discovery assessment, which was upheld following a statutory review. The taxpayer appealed to the First-tier Tribunal (Tax Chamber), who dismissed the taxpayer’s appeal. The Upper Tribunal (Tax and Chancery Chamber) also dismissed the taxpayer’s appeal on the basis that the option was not an “other transaction” within section 45(1)(b) of the 2003 Act, since at the time of the transaction T had not exercised the option and was not entitled to do so for another five year, and on a natural interpretation of section 45(1)(b) the option conferred no “entitlement” to obtain a conveyance. This was reinforced by the fact that the function of section 45 was to build on section 44 of the 2003 Act, which was in turn concerned with a contract which was to be completed by a conveyance, clearly referencing an entitlement that was definite rather than contingent. The taxpayer appealed on the grounds, inter alia, that (i) the option was an “other transaction” within section 45(1)(b) of the Finance Act 2003 and (ii) the secondary contract and grant of an option was substantially performed, such that the final paragraph to section 45(3) of the 2003 Act was engaged.
On the taxpayer’s appeal—
Held, appeal dismissed. A natural interpretation of the statutory language led to the conclusion that the grant of an option was not an “other transaction” as outlined in section 45(1)(b) of the Finance Act 2003. It was clear from section 45(1)(b) that Parliament intended section 45 to apply to transactions under which the initial purchaser either assigned their rights under the original contract or entered into a further contract to sell the land (a subsale). The words “or other transaction” which followed had to be construed in their context. The specific references to assignment and subsale, combined with the definitional words “transfer of rights” and the related use of “transferor” and “transferee” in the closing words of section 45(1), provided a strong flavour of the kinds of transaction to which section 45 was intended to apply. Furthermore the transaction had to be of a kind under which the third party “becomes entitled” to call for a conveyance, rather than “may” or “might” become entitled. All those elements of the language of section 45(1)(b) provided strong indications that what section 45 was intended to apply to was transactions the substance of which was an agreement that the third party would acquire the land instead of the initial purchaser. That conclusion was also consistent with the obvious policy objectives. Stamp duty land tax was a tax on transactions. Section 44 of the 2003 Act was a key provision that imposed stamp duty land tax on transactions of the kind entered into in the present case between G Ltd and the taxpayer. Section 45 was a relieving provision that, broadly, prevented a double charge arising under section 44 where its conditions were met. Parliament could not be taken to have intended that section 45 should provide a means of avoiding stamp duty land tax altogether by the simple grant of an option in circumstances where it was the initial purchaser who ended up with the enjoyment of the land. It is no response to this that stamp duty land tax would be charged in the event that the option was exercised at a later date and the land was conveyed to T. The option might never be exercised. Further, if the option was exercised then that would be a different transaction that would be subject to stamp duty land tax in the normal way in accordance with section 44. Accordingly, the taxpayer was liable to pay stamp duty land tax on the chargeable consideration as prescribed by the Finance Act 2003 (paras 37–38, 52, 53, 55, 56, 63, 64, 65).
Julian Hickey and Rebecca Sheldon (instructed by Levy and Levy Solicitors, Stanmore) for the taxpayer.
Elizabeth Wilson KC and Admas Habteslasie (instructed by Solicitor, Revenue and Customs) for the revenue.