Project Blue (No 2): HMRC must refund overpaid SDLT

In Project Blue Ltd v HMRC [2020] UKFTT 475 (TC), the First-tier Tribunal (FTT) has held that the taxpayer was entitled to repayment of SDLT, as part of the consideration for the property in question was contingent, within the meaning of section 51, Finance Act 2003 (FA 2003) and was never paid.

Background

This appeal concerned the sale of Chelsea Barracks in London (the Property). The sale of the Property has already been the subject of extensive litigation that progressed on appeal all the way to the Supreme Court (Project Blue Ltd v HMRC [2018] UKSC 30). The Supreme Court decided that Project Blue Ltd (PBL) was liable to SDLT of £50 million on chargeable consideration of approximately £1.25 billion for the Property. 

PBL purchased the Property from the Ministry of Defence in 2008 for £959 million. It had obtained a loan from Qatari Bank Masraf al Rayan (MAR), a Qatari financial institution, for £1.25 billion in return for the Property's freehold. MAR then leased the Property back to PBL. 

The relevant terms of the loan were such that it was payable in six instalments, contingent on certain conditions being satisfied and PBL had to serve a price notice on MAR for each instalment once the conditions had been satisfied. MAR never paid the fourth instalment of the loan as the sale agreement was validly terminated when PBL re-financed the purchase following its insolvency. The Supreme Court  held that the loan as a whole constituted chargeable consideration and therefore SDLT of £50 million was due, but the figure could be adjusted under section 80, FA 2003 (adjustment when contingency comes to an end), to the extent the full £1.25 billion was not paid.  

Following the Supreme Court's judgment, PBL requested from HMRC repayment of overpaid SDLT of £11.64 million, relating to the unpaid contingent consideration. HMRC refused the claim on the grounds that the unpaid consideration was not contingent consideration. In its view, PBL's obligation to serve a price notice on MAR before the instalments could be paid was merely an "administrative step" and did not make the loan contingent consideration. Furthermore, HMRC argued that the FTT was not bound by the Supreme Court's decision as there had not been any express finding that the unpaid tranche was contingent consideration.

PBL appealed.

FTT decision

The appeal was allowed.

In the FTT's view, the unpaid instalment was contingent consideration. The instalment had not been simply deferred; it was not payable as the sale agreement no longer applied. It was also contingent on PBL serving a valid price notice on MAR which it could only do if it was solvent, and if PBL failed to serve the notice, or defaulted under the lease, then MAR was not obliged to pay the instalment. The instalments were dependent upon future uncertain events and were therefore contingent for the purposes of FA 2003.

The FTT also held that, even if it had not concluded that the consideration was contingent, issue estoppel would have prevented HMRC from raising the contingency argumente. HMRC was estopped from relying on the contingency argument, as the Supreme Court had already addressed the matter and it could not, therefore, be re-litigated. The FTT held that, contrary to HMRC's submissions, the Supreme Court's judgment had addressed the issue as it had done more than just calculate the sum that had not been paid by MAR. The Supreme Court had expressly noted that PBL had a "claim for repayment of overpaid SDLT". Accordingly, it was not appropriate for HMRC to raise the issue again before a lower court and PBL could rely on the principle of issue estoppel to prevent it from doing so. 

Comment

There are few cases on the definition of what "contingent" means in the context of SDLT. The FTT's findings suggest that it will follow the Supreme Court's reasoning that conditions associated with uncertain future events involving an arrangement will constitute contingencies for the purpose of FA 2003. 

Similarly, the FTT's position regarding issue estoppel is an indicator that the tax tribunals will be reluctant to allow matters that have been the subject of previous litigation to be reopened in new litigation. Issue estoppel tends not to be relevant in tax appeals as matters are generally referable to a tax liability for a specific year of assessment, which is determined independently from other tax years. The FTT held that issue estoppel was applicable in this instance as the SDLT liability related to the same land transaction that was in issue in the previous litigation and an SDLT liability is not a "periodic tax", unlike income tax or VAT. 

A copy of the decision can be viewed here.