Upper Tribunal’s Comprehensive Analysis of SDLT Group Relief and Anti-Avoidance Provisions

The Upper Tribunal's (UT) decision in The Tower One St George Wharf Limited v HMRC [2024] UKUT 373 (TCC) provides important clarification on the application of anti-avoidance provisions under the Stamp Duty Land Tax (SDLT) framework; particularly regarding the “main purpose” test, and the Deemed Market Value Rule (DMVR); establishing that commercially motivated transactions cannot escape anti-avoidance scrutiny where tax avoidance constitutes a main purpose.

The Berkeley Group’s Sophisticated Restructuring

The case involved a Berkeley Group restructuring where Tower One St George Wharf Limited ("Tower One") acquired a 999-year lease of a property through a step plan. The step plan involved: St George (South London) Limited (SGSL) granting the lease to B64 at book value (£30m), sale of B64 shares to Tower One at market value (£200m), and transfer of the lease from B64 to Tower One at book value. This structure was designed to achieve a tax-free step-up in carrying value by using group relief, potentially saving £44m in Corporation Tax whilst serving legitimate commercial purposes of risk ring-fencing and financial flexibility.

HMRC denied group relief for both B64 and Tower One, holding sub-sale relief to be available instead for B64; while for Tower One, it found the arrangement to have tax avoidance as one of its primary motivations. Tower One subsequently appealed to the First-tier Tribunal (FTT), which upheld HMRC’s decision, prompting an appeal to the UT on two grounds: whether the FTT erred in applying Paragraph 2(4A) Schedule 7 of Finance Act 2003 (the “Act”) to deny group relief, and whether the Case 3 exception under Section 54(4) of the Act (DMVR) applied.

The Upper Tribunal's Analysis

Tower One's primary contention, that no tax was actually avoided and therefore arrangements could not have tax avoidance, was firmly rejected by the UT. It held that "Paragraph 2(4A) applies where the relevant purpose exists, and that the effect of the arrangements, namely whether or not any tax was in fact avoided is irrelevant." Tower One's argument that only future or contingent tax benefits were involved was similarly dismissed, with the UT finding that "the avoidance of tax was of a current liability to tax on the latent profit or gain, and not the avoidance of a future or contingent liability to tax”.

Regarding the DMVR, Tower One's contention, that same day transactions fell outside the three-year lookback period, was rejected; with the UT adopting a purposive construction stating there was "no policy reason why a transaction which had occurred earlier on the same day as the distribution transaction should not be caught." Hence, the market value applied for Tower One’s acquisition of the lease from B64. The UT dismissed HMRC’s holding of sub-sale relief for B64 finding it insignificant for this appeal.

Conclusion

The decision establishes a strict anti-avoidance framework for group relief claims, applying a subjective test that examines actual motivations at the time the arrangements are made. Commercial reasons do not shield a transaction where tax avoidance constitutes a main purpose or one of the main purposes, with complex structures raising presumptions of tax motivation when simpler alternatives exist. 

The ruling confirms that group relief may be denied where the transaction was subject to intra-group transfers claiming relief within the preceding three years, including the same day.

Read the full decision of "The Tower One St George Wharf Limited v. HMRC" here.