HMRC wins landmark SDLT avoidance case

In a 4-1 ruling, the Supreme Court has found in favour of HMRC in the long-running saga of Project Blue Limited v. HMRC (2018) UKSC 30, to the effect that the taxpayer was liable to pay stamp duty land tax (SDLT) on the amount of financing (£1.25bn) it received under the sharia’h law compliant structure, and not merely on the actual price it paid for the land (£959m).

To recap briefly, the taxpayer had contracted to buy a freehold property at Chelsea Barracks in London from the Secretary of State for Defence for a basic price of £959m and had arranged to finance this, along with anticipated development costs, by using a sharia’h law structure under which it sub-sold the freehold on to a banking group for £1.25bn and immediately leased back the asset on terms that effectively replicated a normal financing arrangement, at the same time taking a right to buy back the freehold in the future once the financing arrangement had run its course.

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Budget: Tax implications for real estate

Apart from a couple of pieces of good news, the Autumn Budget materials published earlier today contain a number of definite and potential changes to UK tax on real estate which could impact on pricing going forward.

The good news in the residential sector is undoubtedly the headline-grabbing reduction in SDLT for first-time buyers. The net effect of the proposal is that any first-time buyer will either have no SDLT to pay on purchases up to £300k, and less SDLT to pay on purchases up to £500k. This is worth up to £5k.

In the commercial sector, the good news is that the so-called ‘staircase tax’ is effectively being overridden by allowing businesses to ask the Valuation Office Agency to recalculate valuations by reinstating its previous practice in multi-occupancy buildings that applied for business rates purposes before the decision in Woolway (VO) v. Mazars (2015) UKSC 53. Also, no increases in SDLT rates were announced.

However, in the direct tax world, a number of changes are proposed (including changes that are the subject of a consultation announced today) that could have a significant impact, particularly as regards commercial property:

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