18 September 2019 - Article
Charities are exempt from SDLT on purchases of property which they are to use either in their charitable work or to create ‘profits’ to fund their charitable work. This exemption is couched in terms that a single acquisition of property must be made by a charity on its own, or if not that, by charities jointly. It does not cater specifically for joint acquisitions where one acquirer is a charity (and thus appears to qualify) but the other is a non-charity (which would not qualify).
The question that has arisen in the combined cases of Pollen Estate Trustee Company Limited and King’s College London, is whether this ‘all or nothing’ interpretation of the exemption provision is really necessary when it can appear to deprive a charity of an exemption that parliament intended it to have.
The two appellants’ cases are separate except for the general point they addressed. There were a number of side issues which I will ignore, the above being the central point. The facts in KCL best illustrate a possible set of circumstances where this might arise. KCL offered shared equity arrangements for house buying. In the specimen case, Professor Trembath needed a flat which he duly bought with joint equity assistance from KCL. KCL thus acquired an undivided share in the flat to a proportion of just under 50%. An undivided share means that there was no particular part of the flat that KCL owned and which was distinct from what the Professor owned.
HMRC denied SDLT relief on the proportion which was owned by the charity despite there being an intention by the charity to generate qualifying profits from the arrangement (or else it suited their charitable purposes). The sole reason was that the single acquisition was only partly by a charity.
The Upper Tribunal, with some reluctance, agreed with HMRC that the language of the exemption was explicit, and that, lacking any ambiguity that it needed to interpret, he had to find in favour of HMRC. But in a decision of 26 June 2013, the Court of Appeal overturned this negative decision and held that the charity exemption did apply pro-rata to the proportion of undivided share.
The reasoning was that, despite the clarity of the legal drafting, it was clear enough that the draftsman had not considered the point. It was a plain omission that could not be explained by any policy considerations. There was no evidence that the wording had been chosen to preclude these circumstances. The result of applying the strict wording would be capricious. Thus, it would not involve the Court in creating new legislation if it chose to interpret the existing law to encompass such partial cases. All one needed to interpolate into the exemption provisions was the concept that the exemption applied to the extent that a charity acquired a chargeable interest under the provisions. This was not an excessive interpolation, as the court illustrated by several references to cases on different points but where the law was interpreted with enough latitude to give its purpose sufficient scope where the strict language of the law might otherwise have an unintended effect.
HMRC could appeal this benign decision, but since there is plainly no policy reason for the law to be interpreted more strictly, and no evidence that parliament would have intended a capricious result, there can be no valid motive in HMRC taking the matter further. In the light of HMRC’s approach to avoidance, namely considering how parliament intended the tax to work, and how any mitigation needs to be consistent with that intention in order to be acceptable, it would be inconsistent if they were to appeal a decision which must be regarded as reflecting parliament’s intentions for the general scheme of the exemption. It is to be hoped therefore that the legislation will be amended to reflect this Court of Appeal interpretation and that we can put the matter behind us.
Charities that have paid SDLT in such cases in the past, and have thus over paid, should contact Graham Elliott on to discuss what may be done in their situation.