Upper Tribunal Decision Clarifies Procedural Points in relation to SDLT Enquiries and Assessments under Section 75A

The Upper Tribunal (“UT”) in the case of Scatola and others v HMRC [2025] UKUT 156 (TCC) examined the procedural validity of HMRC’s enquiries and discovery assessments, in the context of Stamp Duty Land Tax (“SDLT”). The Appellants were unrelated taxpayers and lead cases. The underlying SDLT at issue related to a marketed avoidance scheme concerning the acquisition of residential properties (the “Arrangements”). It was accepted that the Arrangements failed. This case concerned procedural arguments in relation to the imposition of a tax liability regardless of the Arrangements’ validity. Of particular interest are the UT’s comments which suggest that it is Parliament’s intention to allow a 20-year time limit to challenge any transaction under the section 75A FA 2003 (“section 75A”) anti-avoidance rule, regardless of the filings the taxpayer made.

Background

The case concerned a series of transactions designed to secure SDLT reliefs, mirroring the arrangements previously considered in Project Blue Limited v HM Revenue & Customs [2018] UKSC 30. The Appellants contracted to purchase property from a third-party vendor with the full purchase price to be paid on completion. The Appellants subsequently sold their property at the same price to a Guernsey protected cell company (“Vale”), which was a special purpose vehicle established for the sole purpose of the Arrangements.  Vale granted a 999-year lease back to the Appellants for a premium equal to the purchase price. On completion of the purchase of the relevant property from the vendor, the Appellants sold the respective freehold of the property to Vale and Vale immediately granted 999-year leases to the Appellants with an option to purchase the freehold reversion for £1. The Appellants occupied their property from the date of completion of the contract with the vendor.

The Appellants and Vale, together, filed three land transaction returns for SDLT.

• Return A was filed by the Appellants and related to the Appellants’ purchase of the freehold from the vendor. It included a claim for sub-sale relief under section 45(3) FA 2003 and showed no SDLT due.
• Return B was filed by Vale and related to its acquisition of the freehold from the Appellants by way of sub-sale. It claimed alternative finance relief under section 71A FA 2003 and showed no SDLT due.
• Return C was filed by the Appellants and related to the Appellants’ acquisition of the lease. It also claimed alternative finance relief under section 71A FA 2003  and showed no SDLT due.

Section 75A is an anti-avoidance rule aimed at addressing arrangements involving a series of transactions resulting in a reduced, or no, SDLT liability. It requires such transactions to be considered as a single "notional transaction" that must be reported separately via its own SDLT return. The effect of the judgment in Project Blue was that SDLT was due on a notional transaction effecting a purchase of the property by the Appellants from the vendor under section 75A.

In 2011, HMRC opened enquiries into the returns. In 2017, HMRC issued:  

• closure notices demanding the unpaid tax, and
• discovery assessments in respect of the Appellant’s notional acquisition of the property under section 75A on a protective basis as an alternative to the closure notices

HMRC argued that as the Appellants had failed to file a return in relation to the notional transaction under section 75A, it could rely on the 20-year extended time limit for making discovery assessments under paragraph 31(2A)(b) Schedule 10 FA 2003.

The Appellants argued that the closure notices were invalid as the letters that purported to open enquiries contained errors that rendered them ‘ambiguous’ and insufficiently clear. They:

• did not identify the Unique Tax Reference number which HMRC allocates to all land transaction returns; and
• only mentioned an enquiry into one land transaction return when they had filed two returns regarding the same property (Returns A and C).

In respect of the discovery assessments, on the basis that Return A satisfied the requirement to file a return in relation to the notional land transaction under section 75A, the Appellants argued that HMRC only had 4 years from the effective date of a transaction to raise an assessment (under paragraph 31(1) Schedule 10 FA 2003).  As the assessments were raised in 2017, nearly 6 years later, the discovery assessments were out of time and therefore, invalid.  

Decision

The UT considered firstly, the First-tier Tribunal’s (“FTT”) conclusion on the validity of HMRC’s enquiries and secondly, the limitation period for making discovery assessments.

1. Validity of HMRC Enquiries:
   In relation to the enquiry notices, the UT decided the FTT was correct to conclude that the enquiries were valid as, a reasonable taxpayer, having considered the correspondence in this case, would have understood HMRC’s intention to enquire into both returns (A and C) filed by each taxpayer.
2. Application of the 20-Year Time Limit:
   In relation to the discovery assessments, the UT did not need to decide this point due to its findings on the enquiries, but expressed a view that none of the returns filed by the Appellants nor Vale related to the notional land transaction under section 75A. As a result, the UT would re-make the FTT’s decision on this point confirming the discovery assessments to be validly made within the extended 20-year time limit for discovery assessments (under paragraph 31(2A)(b) of Schedule 10 FA 2003). The extended time limit applied on the basis that the taxpayers had failed to make a return in respect of the notional transaction.

Comment

The effect of this decision would therefore appear to be that there is always a 20-year exposure period as regards to transactions involving a section 75A risk. Although the UT thought it unclear how a protective SDLT return in respect of a notional transaction could be filed (because a ‘nil’ section 75A return would be inconsistent with the returns filed by the taxpayer on the real transactions), it concluded that the purpose of the relevant provisions was to provide HMRC with an extended window within which to collect tax under section 75A, reflecting the anti-avoidance purpose of the provision.

Taxpayers engaging in complex or multi-step property arrangements should be aware of the extended exposure to HMRC challenge under the discovery assessment provisions and how this interacts with section 75A.

This article was co-authored by Nicola Hine and Elizabeth Sherwood, and prepared with the assistance of Rachel Hii, a trainee in CMS London.

For further information, please contact the authors or your usual advisor.