Prudential Assurance Co Ltd v Inland Revenue Commissioners: ChD 2002

The taxpayer company had entered into two contracts on the same day. The contracts involved a taxpayer buying a freehold property from developers coupled with a separate development agreement under which the developers would complete construction work already started on the freehold property. HMRC assessed the taxpayer company to stamp duty by reference to the total amount of consideration payable for the sale of land and all the building works.
Held: The transaction entered into by the taxpayer could not be characterised as a sale of land with finished buildings thereon. That was not the legal shape of the transaction. The sale agreement was completed independently of the development agreement. Stamp duty was payable on the consideration for the sale agreement alone.
Sir Donald Nicholls V-C considered how to interpret the documents to see their taxation effect: ‘I must therefore identify what was the subject matter of the sale. In so doing I must have regard to the commercial substance of the transaction. I must also have regard to the shape, or form, which the parties have chosen for their transaction. A given commercial result can often be reached by more than one route. If the parties have genuinely chosen one route, with the legal incidents and consequences attendant on that route, rather than a different route having different legal incidents and consequences, for better or worse stamp duty will be assessable accordingly.
In the present case the sale agreement and the development agreement and indeed, the transfer were all part of one transaction in the sense that together they comprised a single package or bargain. They were all executed on the same day and no doubt all three were executed simultaneously. Clearly the end result intended by the parties was that the land, previously belonging to the developers would become the property of the taxpayer company together with the new buildings being constructed by the developers. The commercial object of the transaction was that the taxpayer would acquire a development being carried out for it by the developers with funds provided by the taxpayer company.
However, I am unable to characterise the transaction by which that end result was sought to be achieved as a sale of the land with finished buildings thereon. That, manifestly, was not the legal shape of this transaction. The sale agreement was, as the parties intended, completed independently of the carrying out of the building works under the development agreement.’

Sir Donald Nicholls V-C
[2002] STC 863
England and Wales
Cited by:
CitedHelena Housing Ltd v Revenue and Customs FTTTx 1-Feb-2010
FTTTx CORPORATION TAX – ASSESSMENT – DEDUCTION FOR EXPENDITURE – Was the expenditure incurred wholly and exclusively for its Schedule A business – No – Was the Appellant a Charity – No – Appeal dismissed . .

Lists of cited by and citing cases may be incomplete.

Stamp Duty

Updated: 01 November 2021; Ref: scu.463816