England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		27th January 2004

Mr Justice Lightman:

INTRODUCTION

1. This is an appeal by way of case stated by the appellants Mr and Mrs Keston ("the Kestons") against a decision of the Commissioners of Inland Revenue ("the Commissioners") on an adjudication under section 12 of the Stamp Act 1891 concerning the application of the stamp duty subsale provisions to an instrument dated the 9^th October 2000 ("the Transfer"). It raises two questions. The first is whether a conveyance direct from a vendor to a subpurchaser may be chargeable to stamp duty in respect both of the consideration payable by the purchaser to the vendor and the consideration payable by the subpurchaser to the purchaser. The second is whether liability to pay the full amount of stamp duty on any sale agreement can be avoided by the simple interposition of a shell company and a subsale by that company on instalment terms.

FACTS

2. By an agreement dated the 6^th September 2000 ("the Sale Agreement"), Judith de Paul ("the Vendor") agreed to sell and Kinrush Limited ("Kinrush") agreed to buy the property known as Iverfarne House, Iver Heath, Buckinghamshire ("the Property") for a consideration of £1.3 million. The completion date for the sale was specified to be the 9^th October 2000 and it was expressly provided that Kinrush had the right to require the Vendor to transfer the property to any person it reasonably nominated.
3. By a further agreement dated the 6^th September 2000 ("the Subsale Agreement") Kinrush agreed to transfer the property to the Kestons for a purchase price of £1.3 million. By clause 9 of the Subsale Agreement the Kestons' liability for the payment of the purchase price was to be satisfied by:

i. the immediate payment of £500 by way of deposit;

ii. 23 annual instalments of £500 each payable on the 31^st December each year commencing the 31^st December 2001 until the 31^st December 2024; and

iii. a final instalment of the balance together with interest on the reducing capital balance.

4. The Sale and Subsale Agreements were completed by the Transfer by which the Vendor at the request of Kinrush transferred the Property to the Kestons and the Vendor acknowledged that he had received from Kinrush as purchaser the sum of £1.3 million. The Transfer went on to set out the terms of clause 9 of the Subsale Agreement.
5. On the 14^th January 2003 the Commissioners made a decision on adjudication pursuant to section 12 in which they assessed that the Transfer was chargeable to duty in the amount of £52,400, made up as to £400 in respect of the consideration payable by instalments over the first 20 years from the sale (£10,000) under the Subsale Agreement and £52,000 in respect of the consideration of £1.3 million payable under the Sale Agreement.
6. The Kestons were dissatisfied with the decision and required the Commissioners to state a case, which they did on the 2^nd September 2003. By that statement of case they requested the opinion of the court whether the Transfer was chargeable with duty in the amount assessed and, if not, with what amount of duty the instrument was chargeable.

THE LEGISLATION

7. The Stamp Act 1891 imposes charges to stamp duty on instruments (and in particular conveyances) and not transactions. The Finance Act 2003 introduces with effect from the 1^st December 2003 a new tax known as stamp duty land tax charged on "land transactions", meaning any acquisition of a "chargeable interest" (i.e. any freehold, leasehold or equitable interest over land) and abolished stamp duty on all instruments apart from instruments relating to sales of stock and marketable securities, partnership dealings and bearer instruments (see section 125). The Transfer in this case however continues to be subject to the provisions of the Stamp Act 1891. References in this judgment to sections are to sections in that Act unless otherwise indicated.
8. Section 4(a) requires that in the absence of express provision to the contrary an instrument containing or relating to several distinct matters is to be separately and distinctly charged, as if it were a separate instrument, with duty in respect of each of the matters.
9. The critical statutory provisions are sections 56(2) and 58(4) and (7). The heading to section 56 reads: "How consideration consisting of periodical payments to be charged". Section 56(2) provides as follows:

"(2) Where the consideration, or any part of the consideration, for a conveyance on sale consists of money payable periodically for a definite period not exceeding twenty years, or in perpetuity, or for any indefinite period not terminable with life, the conveyance is to be charged in respect of that consideration with ad valorem duty on the total amount which will or may, according to the terms of sale, be payable during the period of twenty years next after the day of the date of the instrument."

The critical words are "charged in respect of that consideration".

10. The Heading to section 58 reads: "Directions as to duty in certain cases". Section 58(4) and (7) provide as follows:

"(4) Where a person having contracted for the purchase of any property, but not having obtained a conveyance thereof, contracts to sell the same to any other person, and the property is in consequence conveyed immediately to the sub-purchaser then, except where-

(a) the chargeable consideration moving from the sub-purchaser is less than the value of the property immediately before the contract of sale to him, and

(b) the conveyance is not one to which section 107 of the Finance Act 1981 (sales of houses at discount by local authorities etc) applies,

the conveyance is to be charged with ad valorem duty in respect only of the consideration moving from the sub-purchaser.

…

7. Any reference in subsection (4) or subsection (5) of this section to chargeable consideration is a reference to consideration which falls to be brought into account in determining the duty (if any) chargeable on the conveyance to the sub-purchaser or, as the case may be, on the conveyance of each of the parts or parcels in question; and in any case where it is necessary for the purposes of either of those subsections to determine the value at any time of any property, that value shall be taken to be the price which the property might reasonably be expected to fetch on a sale at that time in the open market."

The critical words in section 58(4) are "the chargeable consideration moving from the sub-purchaser".

11. Paragraph 1 of Schedule 13 of the Finance Act 1999 provides that stamp duty is chargeable on a conveyance or transfer on sale and that for this purpose "conveyance on sale" includes every instrument by which any property or estate or interest in property is on being sold transferred to or vested in the purchaser or another person on behalf of or at the direction of the purchaser. Paragraph 2 provides that duty under this Part is chargeable by reference to the amount or value of the consideration for the sale.

DOUBLE LIABILITY

12. The first question is whether as a matter of principle a conveyance by a vendor to a subpurchaser is (in the absence of any relevant exemption or relieving provision) chargeable to stamp duty by reference both to the consideration moving from the purchaser to the vendor and to the consideration moving from the subpurchaser to the purchaser. Mr Price, counsel for the Kestons submits that the answer is in the negative.
13. In my judgment the answer must plainly be in the affirmative, for the conveyance implements and gives effect to both agreements. This is clearly so stated in Sergeant & Sims on Stamp Duty, loose-leaf paragraph A5.6, which goes on to describe section 58(4) as conferring relief for subsales from this double liability, a description adopted in other works on the subject. The authority cited by Sergeant & Sims for the proposition is a passage in the speech of Lord Somerville in Escoigne Properties Ltd v. IRC [1958] AC 549 at 563. The passage in Lord Somerville's speech was relied on by Wilberforce J (as he then was) in his decision to this effect in Fitch Lovell Ltd v. IRC [1962] 1 WLR 1325 at 1341 and 1343-4, and in the course of doing so (at p.1343) referred to section 58(4) as giving a concession as regards stamp duty where property passes unaltered. This view of the law likewise accords with the views expressed by Lord Denning in Oughtred v. IRC [1960] AC 206 at 232-3.
14. In a word, as it seems to me, the task undertaken by Mr Price in seeking to establish the contrary is beyond even his powers of advocacy and ingenuity.

SECTION 58(4) RELIEF

15. As a matter of principle, since the Transfer implements both the Sale and the Subsale Agreements, the Transfer must be chargeable to stamp duty by reference to the amount payable under both Agreements unless the Kestons can successfully invoke relief and in particular relief under section 58(4). The question whether they can do so must turn on the interrelationship between sections 56(2) and 58(4) and 58(7).
16. Section 56(2) requires that the Transfer is charged in respect of the consideration payable under the Sale Agreement of £1.3 million with ad valorem duty on the total of the instalments payable during the 20 years next after the date of the Transfer (i.e. £10,000). Section 58(4) requires the Transfer to be charged with ad valorem duty in respect only of the consideration moving from the Kestons (and accordingly not in respect of the consideration moving from Kinrush) unless (as provided in section 58(4)(a) the "chargeable consideration moving from [the Kestons] is less than the value of the Property immediately before" the Sale Agreement (i.e. £1.3 million)). The issue accordingly is the quantum of the "chargeable consideration" referred to. The role of section 58(7) is to establish how such quantification is to be made. It provides that the reference in section 58(4) to "chargeable consideration" is a reference to consideration which falls to be brought into account in determining the duty (if any) chargeable on the Transfer. The consideration which falls to be brought into account for this purpose is specified in section 56(2): it is the total of the 20 year instalments (£10,000) and not the consideration for the Transfer (£1.3 million). Since the consideration to be taken into account is less than the value of the Property at the date of the Subsale Agreement, section 58(4) does not apply and accordingly relief under it is not available to the Kestons. The Transfer is therefore chargeable in respect of the full consideration for the Property under the Sale Agreement.
17. Mr Price has vigorously submitted to me that under section 56(2) the charge is in respect of the £1.3 million consideration under the Sale Agreement and that £1.3 million is accordingly the chargeable consideration for the purposes of section 58(4). He concedes for this purpose that the word "chargeable" in section 58(4) adds nothing to the word consideration in the subsection. He took me through a series of examples of situations where the actual consideration paid by the subpurchaser may be the chargeable consideration. An example is where there has been a fall in the value of the property between the date of the sale and the subsale and on both occasions the price is the market value. In that situation (unless there is additional consideration e.g. in the form of the undertaking of a contingent liability bringing into play section 57) the price paid by the subpurchaser to the purchaser will be the chargeable consideration by reference to which the stamp duty on the conveyance by the vendor to the subpurchaser is to be calculated. But in a case such as the present where section 56(2) operates to charge stamp duty on part only of the consideration paid by the subpurchaser, that part is the chargeable consideration. This is made clear beyond question by section 58(7).
18. Accordingly again despite the valiant efforts of Mr Price, I must hold that the stamp duty chargeable on the Transfer is, as assessed by the Commissioners, £52,400.

RESULT

19. I accordingly dismiss this appeal.