Court upholds retrospective nature of latest stage of anti Stamp Duty Land Tax avoidance drive

In St Matthews (West) Ltd & Ors, R (on the application of) v HM Treasury & Anor [2014], the claimant used a tax avoidance scheme structured by Blackfriars Tax Solutions LLP (“Blackfriars”) to minimise their exposure to Stamp Duty Land Tax (“SDLT”) (“the Blackfriars Scheme”).

The claimant sought leave for judicial review as to Sections 194(1)(a) and 194(2) of the Finance Act 2013 (“FA 2013”) which, by amending Section 45 of the Finance Act 2003, with retrospective effect from 21 March 2012, clarified that SDLT is chargeable in full on transactions structured under the Blackfriars Scheme.

The claim was based upon alleged infringement of Article 1 of Protocol 1 (“A1P1”) and Article 14 of the European Convention of Human Rights (“ECHR”).

So far as relevant, A1P1 provides, that:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary …. to secure the payment of taxes….”

It was argued that the claimant was deprived of a possession in the form of the alleged proprietary interest in the nature of his claim to tax relief.

However the High Court said Sections 194(1)(a) and 194(2) FA 2013 did not impose a liability on the claimant to make any payment. The claimant’s underlying premise, which was that there had been no such liability, and thus an entitlement to keep the money, until that retrospective legislation had been passed, had not been established, and relied on the application and interpretation of the previous legislation, which had always been contentious.

Sections 194(1)(a) and 194(2) FA 2013 deprived the claimant of an argument that they were not liable to pay the tax, or of a defence to HM Revenue and Customs (“HMRC”)’s claim. A legal argument, whatever its merits, was not a “possession” for the purposes of A1P1.

So the court was not convinced AIPI was even engaged but assuming it was: the 2012 Budget had nullified tax avoidance schemes based on the Finance Act 2003’s SDLT “transfer of rights rules”, and the Chancellor had expressed his determination to close all similar loopholes. Thereafter any well advised person must have known that, when HMRC discovered any variant of an existing scheme, HMRC would act swiftly to end that variant as from the same date.

The Government could not have given clearer signals as to its policy and its intentions in that regard.

The enactment of retrospective legislation to put it beyond doubt that this variant was caught by Section 45(1A) was entirely foreseeable. Anyone in the claimant’s position who entered into the Blackfriars scheme did so at their own risk.

There was nothing arbitrary about the legislation. The amendments to Section 45(1A) were part and parcel of the overall package of measures designed to obliterate the abuse of “the transfer of rights rules”.

The legislation was enacted for good reason, and after proper consideration of all relevant factors.

Critically, the legislation made sure that Section 45(1A) took effect in the way that it had always been intended to, at and from the time of the 2012 Budget, and blocked the perceived loophole in Section 45.

Furthermore, in 2013, the proposed amendments to that section were scrutinised in accordance with the usual democratic processes before the legislation was passed by Parliament.

Any alleged lack of compliance with the Protocol did not derogate from the clarity or foreseeability of the legislation or the justification for Parliament’s decision to make it retrospective.

This blog has been posted as a matter of general interest. It does not replace the need to get bespoke legal advice in individual cases.