Pollen Estates: SDLT charities relief

The Court of Appeal has overturned the decision of the Upper Tier Tribunal, and held that charities relief is available to a charity where it jointly acquires property with a person other than a charity. The intention of that relief is to exempt charities from an SDLT charge in instances where it acquires property for qualifying charitable purposes, those being for use in furtherance of a charitable purpose of that charity or as an investment from which profits are applied to the charitable purposes of the charity.

In this case, two of the beneficiaries of the Pollen Estate Trust (PETCL) were charities entitled to claim charities relief but the remaining beneficiaries were not. PETCL acquired commercial property and the appeal concerned HMRC's refusal to allow the two charities relief from SDLT on a proportion of the consideration because the other beneficiaries were not charities.

No coherent policy rationale for denying relief

Lewison LJ's judgment gave an early indication of a conclusion in favour of the taxpayer by setting out the scenarios under which a charity would be entitled to relief and comparing them to the current facts. He could see no reason why the latter should result in the appellants being left with a charge to SDLT and indeed it had been made clear at the Upper Tribunal that there was no coherent policy rationale for HMRC denying relief. This was duly noted by the Court of Appeal.

Charities relief intended to apply to the extent that the purchaser is a charity

The Court of Appeal agreed with the Upper Tribunal that only one chargeable interest was acquired by the trustees, not undivided shares individually acquired by the beneficiaries. However, it differed from the Upper Tribunal in its approach to the construction of the statute.

The court considered that it was possible to read charities relief as applying "to the extent that the purchaser is a charity" rather than just "if the purchaser is a charity". This formulation would only result in the transaction being partially exempt if some of the beneficiaries were charities and Lewison LJ considered that this would encompass what must have been Parliament's intention.

Tax treatment of non-charitable beneficiaries

Unfortunately, the judgment does not go any further in explaining how the beneficiaries not entitled to charities relief should be treated. Should those purchasers be charged by reference to an SDLT rate applicable to the total consideration provided by the trustees for the acquisition, or by reference to the remaining consideration once the charity is afforded the relief? The former does not seem to be the result of a natural reading of the provisions relating to chargeable consideration; if the charities' proportion of consideration is exempt from charge, how it can also form the chargeable consideration for the purposes of calculating the applicable rate of SDLT is unclear.

So although favourable for the taxpayer and surely a sensible result in the context of this case, the judgment offers no insight into making land transaction returns in such circumstances.

Refund claims invited

In light of that judgment, HMRC invites claims for any overpaid SDLT from charities that purchased a property jointly with a non-charity purchaser, satisfied the relevant conditions, but did not claim the relief. Relief is limited to circumstances where the charity used the greater part of its share of the property for a charitable purpose.

Please click on the links below for the other articles in the August 2013 tax newsletter.

• Project Blue: SDLT sub-sale relief
• DV3 RS Limited Partnership: SDLT sub-sale relief
• Consultation on corporate debt and derivatives
• Raising the stakes on tax avoidance
• Loans to participators consultation
• Trust and transparency
• Disclosure of Tax Avoidance Schemes (DOTAS)