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.
Author: David Evans, Senior Associate, Real Estate, London
Negotiating the purchase of a property while simultaneously negotiating the sale of the same property can be difficult, especially where the sub-sale element is confidential. But a sub-sale can be a very attractive way to structure a transaction for a middle man. Provided substantial performance or completion of the contracts to purchase and sell the property occur more or less simultaneously, the middle man will not be liable for SDLT on the purchase (subject to satisfying the conditions in the pre-completion transactions rules) and can potentially walk away from the transaction with a profit and limited residual liability in respect of the property. It can be a useful tool for developers who are keen to develop but not hold a long-term interest in the property – a developer middle man could sub-sell property but at the same time agree with the ultimate purchaser to develop the property on their behalf. However, careful consideration should be given to how the due diligence process is managed and what is included in the sale contract.