Portland Gas is a case that should never have come to Court. Sadly it confirms HMRC’s intention to go on exploiting a windfall and unjustified gain from some hurried and lazy drafting in Part 4 of the Finance Act 2003.
Those with long memories will recall the halcyon days when Stamp Duty could sometimes be avoided by simply arranging not to complete, known as “resting in contract”. Housebuilders “rested in contract” to avoid taking stampable transfers of development sites. In response, FA 2003 contained detailed provisions designed to prevent “resting in contract”, which involve a concept called “substantial performance”. The idea is that taking possession of or paying for land you’ve contracted to buy or rent counts as completion, even if no transfer or lease has been granted. Someone “substantially performing” has 30 days after doing so in which to file an SDLT return and pay SDLT on a notional transaction as if he or she had legally completed the real one. Another return (and depending on the circumstances, more SDLT) is due if and when, later, legal completion actually occurs.
It’s not hard to spot the problem caused by making people pay a transaction tax prematurely on transactions that haven’t happened. What happens if, for some reason, completion never takes place or doesn’t take place as planned?
Portland Gas exchanged agreements for lease in April 2008. Later that year and with its landlord’s agreement, Portland “substantially performed” the agreement for lease by taking possession of the site and starting to pay rent. It filed the required return for the notional lease at that juncture and paid the SDLT due, £168,122. Later, in June 2012, Portland and its landlord agreed to reduce the area to be let by the lease and to reduce the rent from £1,500,000 p.a. to £706,400. On the same day the lease was granted on the revised terms.
Portland’s 2008 SDLT payment had turned out, in 2012, to be far too big. It sought a rebate of £68,408; taking comfort from Para. 12A of Schedule 17A of FA 2003, which says that where SDLT has been paid under the “substantial performance” rule:
“… and the agreement is (to any extent) afterwards rescinded or annulled or is, for any other reason not carried into effect, the tax paid by virtue of sub- paragraph (1) shall (to that extent) be repaid by the Inland Revenue. Repayment must be claimed by amendment of the land transaction return made in respect of the agreement.”
HMRC responded by citing Para. 6(3) of Schedule 10 FA 2003 which reads:
“Except as otherwise provided, an amendment may not be made more than twelve months after the filing date” [of the original return]
Given that the filing date (the last of the 30 days allowed to Portland in 2008 to file the return for the notional lease) occurred much more than 12 months before Portland’s June 2012 attempt to amend its 2008 return, HMRC refused to repay the £68,408.
Sadly, having fought the case through the First-tier Tribunal and the Upper Tribunal, Portland Gas has decided, we are told, not to pursue the matter to the Court of Appeal.
The problem is caused by the drafting laziness of stealing wording from one tax statute and shoehorning it into a different one, without thinking carefully enough about the differing circumstances. There are taxes where it makes some sense to allow a period as short as one year in which returns can be amended. But SDLT is not one of them. A developer substantially performing an agreement for lease, by starting works before the lease is granted, may well need at lot longer than 12 months in which to complete the development and do everything else that it must done before it becomes entitled to call for the grant of the lease.
HMRC’s current attitude is simply “tough”; which is little short of bizarre given that one can apply to amend an Income Tax return any time up to four years after it was filed. Why is HMRC singling out SDLT payers for specially harsh treatment? After all, no new legislation is required. All that is needed is for HMRC to accept that the second sentence of Para. 12A quoted above qualifies as one of the “otherwise provided” provisions referred to in Para. 6 (3) of Schedule 10.