GAAR ADVISORY PANEL

Redacted and sub-panel approved version of the Opinion notice produced

under paragraph 34 of Schedule 16 to the Finance (No.2) Act 2017 (penalties
for enablers of defeated tax avoidance)

Subject Matter
Stamp Duty Land Tax arrangements in relation to the sale and purchase of a residential
property that involve a sub-sale and an annuity.

Taxes
Stamp Duty Land Tax

Relevant Tax Provisions

Part 4 Finance Act 2003 (“FA 2003”), in particular sections 42, 43, 45, 52 & 75A. Also,
Schedule 2A FA 2003 and Schedule 4 FA 2003.

Opinion
The entering into and the carrying out of the tax arrangements is not a reasonable course of
action in relation to the relevant tax provisions.

OPINION NOTICE: ENABLERS REGIME REFERRAL OF 1 SEPTEMBER 2021

This opinion notice is given pursuant to paragraph 34 of Schedule 16 to the Finance (No 2)
Act 2017 (“Schedule 16”) by a sub-panel consisting of three members of the GAAR Advisory
Panel (the “Panel”) in the referral by HMRC dated 1 September 2021 relating to a tax
adviser company (“the Company”). The Company is in liquidation but has been represented
and has been in receipt of legal advice. The referral relates to stamp duty land tax (“SDLT”)
in connection with residential conveyancing.

The sub-panel has received extensive written material from HMRC and the Company in
accordance with the provisions of Schedule 16. No representations were received by HMRC
from the Company before the referral but, with permissions for time extensions,
representations have been received subsequently (and the final representations have been
commented on by HMRC) in accordance with paragraph 32 of Schedule 16.

1. Reminder of what the sub-Panel’s opinion notice is to cover

Schedule 16 is headed ‘Penalties for enablers of defeated tax avoidance’. The
requirement of the sub-panel of the Panel is framed under paragraph 34 of Schedule
16:

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 “34 (1) The sub-panel must produce—
(a) one opinion notice stating the joint opinion of all the members of
the sub-panel, or
(b) two or three opinion notices which taken together state the opinions
of all the members.
(2) The sub-panel must give a copy of the opinion notice or notices to the
designated HMRC officer.
(3) An opinion notice is a notice which states that in the opinion of the
members of the sub-panel, or one or more of those members—
(a) the entering into and carrying out of tax arrangements such as are
described in the referral statement is a reasonable course of action in
relation to the relevant tax provisions,
(b) the entering into or carrying out of such tax arrangements is not a
reasonable course of action in relation to the relevant tax provisions,
or
(c) it is not possible, on the information available, to reach a view on
that matter,
and the reasons for that opinion.
(4) In forming their opinions for the purposes of sub-paragraph (3) members
of the sub-panel must—
(a) have regard to all the matters set out in the referral statement,
(b) have regard to the matters mentioned in paragraphs (a) to (c) of
paragraph 3(3) and paragraph 3(4), and
(c) take account of paragraph 3(5) to (7).”

Paragraph 34 then goes on in sub-paragraph (5) to lay down that:

“For the purposes of the giving of an opinion under this paragraph, the
arrangements are to be assumed to be tax arrangements.” The effect of
paragraph 34(5), read with the definition of “tax arrangements” in paragraph
3(1) (see further below), is that we are to assume that it is reasonable to
conclude, having regard to all the circumstances, that the obtaining of a tax
advantage was the main purpose, or one of the main purposes, of the
arrangements.

2. Legislative background: what Schedule 16 does

2.1 We indicate below the main test in Schedule 16 so as to provide some
background to the previous paragraph setting out what the sub-panel’s opinion
is to cover. Paragraph 1 of Schedule 16 states (our emphasis):
“1 Where
(a) a person (“T”) has entered into abusive tax arrangements, and
(b) T incurs a defeat in respect of the arrangements,

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 a penalty is payable by each person who enabled the arrangements.”
2.2 The Schedule then goes on to define the terms we have emboldened:
 Abusive tax arrangements (Part 2 – paragraph 3)
 Defeat (Part 3 – paragraphs 4-6)
 Persons who enabled the arrangements (Part 4 – paragraphs 7-14)
2.3 As indicated in paragraph 1 above, Schedule 16 paragraph 34 requires us to give
an opinion on the reasonableness of the arrangements. We are not required to
consider and opine on the terms in 2.2 above. Whether “tax arrangements” are
“abusive” involves, as does the general anti-abuse rule (the “GAAR”), a “double
reasonableness” test.

3. Terms used in this opinion and parties to the arrangements

3.1 The main parties are as follows:
(a) The Company
(b) Mr A and Mrs A, husband, and wife, who were the purchasers of the
property to which the SDLT relates. We refer to Mr and Mrs A together as
the “Taxpayers”. Mr A is also referred to in the Appendix as “Purchaser 1”
or “P1” and Mrs A is also referred to there as “Purchaser 2” or “P2”.
3.2 When we refer to “Guidance” we mean the GAAR guidance approved by the
Panel as in effect in October 2018.
3.3 The arrangements related to the purchase of a house in England which we refer
to as the “Property”
3.4 The conveyancing solicitors used by the Taxpayers are referred to as “Z”.

4. Outline of the arrangements

4.1 Details of the arrangements that were put to the Panel in a referral statement
under paragraph 27 of Schedule 16, the relevant parts of which are reproduced
in the Appendix (with definitions aligned but otherwise without change,
including for numbering and typographical mistakes), may for ease of reference
be summarised as follows.
4.2 The arrangements concerned the purchase of a house by Mr and Mrs A
involving:
 a contract for Mr and Mrs A to buy the house from a third-party for
£549,000 for completion as “tenants in common” in respective ratios 99%:
1%.
 an agreement between Mr and Mrs A for Mr A on completion of the
purchase of the house to hold an 81% interest in the house under a
declaration of trust in favour of Mrs A.
 the consideration for the 81% interest held in favour of her being the grant
by Mrs A to Mr A of an annuity with a capital value of £449,136.90 (a 1%

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 uplift of the original contract price for that interest) providing an annual
payment of £1,122.84 (a yield of 0.25%).
4.3 The consideration on which SDLT was paid on completion of the purchase of the
house was calculated as 19% of the £549,000 purchase price plus 12 instalments
of £1,122.84, calculated (see further below) using special rules for valuing the
grant of the annuity combined with SDLT rules for sub-sales on the basis that
they treat the annuity as displacing the consideration paid to the third-party in
respect of the 81% interest.
4.4 The calculation at 4.3 above led to the payment of nil SDLT rather than the SDLT
of £17,450 that would have been paid under the original contract to buy the
house for £549,000.

5. The Arrangements: additional comments

5.1 The referral statement does not include full details of the annuity terms or the
detailed terms or precise timings of the transaction documents. We have readily
concluded that we have enough information however to reach our opinion. We
also note that our opinion is required about arrangements “such as” are
described in the referral statement.
5.2 We note too that the Company has provided further details about the annuity in
its representations (see 10.4 below) and that they have relevance to what is said
in paragraph 2.8 of the Appendix.

6. Preliminary matter: referral process to the Panel

6.1 For reasons beyond the Panel’s control a good deal of time has passed between
the referral to the Panel and the issue of this opinion notice. This is partly due to
certain challenges, ultimately unsuccessful, the Company made concerning the
referral process to the Panel. Following the conclusion of these challenges, the
Panel allowed the Company to make further representations; the Company duly
made further representations on a series of points, only some of which go to the
question we are required to address in this opinion, which we outline again
below. Points made in representations that do not go to the question we are
required to address including about the implications (if any) of the threshold
before there can be assessment of penalties in “multi-user scheme” cases
(paragraph 21 of Schedule 16) for the timing of a referral, are not discussed
here.
6.2 We have considered the formal requirements in Part 7 of Schedule 16 for a
referral to us including the notices involved and the information we are to
receive and are content with what we have seen.
6.3 The opinion we give in accordance with Schedule 16 is provided in circumstances
where there has been a “defeat” (the defeat here is understood to be a contract
settlement). But, as far as the Company is concerned it is not agreed that there

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 is a technical basis on which the arrangements do not succeed. This situation
also (and commonly) arises when opinions are given in GAAR cases (under
Schedule 43 Finance Act 2013). One consequence is that there are technical
issues addressed in the papers on which HMRC and the Company appear to have
different positions. We do not seek to express views on the technical
differences (or of course to find facts relevant to them). Our role is to decide
whether we consider the arrangements identified are reasonable by reference
to a set of standards set out in the statute.
6.4 The issue to emphasise, based on the above, is that this opinion is limited to
what is required of us in paragraph 34 of Schedule 16.

7. Relevant tax provisions and the parties’ positions

7.1 SDLT is provided for in Part 4 Finance Act 2003 (“FA 2003”). We do not
summarise here the general provisions but note that the SDLT on a land
transaction comprising only a purchase of the Property by the Taxpayers (buying
in whatever ownership proportions as tenants in common that they chose)
would be £17,450 as noted at 4.4 above (and in the Appendix).
7.2 There are special rules which relieve double charges for certain sub-sales and
similar transactions (“pre-completion transactions”) in section 45 and Schedule
2A FA 2003 (rules which as they now stand, including anti-avoidance provisions
discussed below, were introduced by Finance Act 2013); and there is a special
rule in section 52 FA 2003 relating to cases where the chargeable consideration
for a land transaction consists of an annuity (limiting the chargeable
consideration taken into account to twelve years’ annual payments). There is
also an SDLT regime targeted anti- avoidance rule (“TAAR”) in section 75A FA
2003, which was introduced in 2006. Those are the key provisions for this
opinion. Among other things they involve points on what counts as “chargeable
consideration”, to which Schedule 4 FA 2003 is relevant.
7.3 The Company’s original advice to the Taxpayers as it has been put to us is
essentially as follows. The ordinary SDLT computation on the Property purchase
is displaced, through section 45 and Schedule 2A, as regards the part of the
original contract “sub-sold” by Mr A to Mrs A by declaration of trust (on the
basis that there is a “free-standing transfer” within paragraph 2 of Schedule 2A
involving a “qualifying sub-sale” within paragraph 16 of Schedule 2A), with the
consideration for the sub-sale used instead, which is limited to 12 annual
annuity instalments. The planning is therefore based on a combination of the
sub-sale regime and the annuity regime. It is said by the Company that an anti-
avoidance rule in the sub-sale regime (paragraph 18 of Schedule 2A), which
denies sub-sale relief, does not apply because it is overreached by the TAAR in
section 75A but also that on a detailed review of section 75A the TAAR does not
have any impact.

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7.4 HMRC’s position as explained to us is in outline as follows:
7.4.1 There is no pre-completion transaction relevant to Schedule 2A – just an
acquisition of the Property by the Taxpayers in agreed unequal
proportions.
7.4.2 In any event if there is a second transaction to consider it is not one that
counts as a pre-completion transaction for the purposes of Schedule 2A
because what is required is a transaction with a third-party (not just
among Taxpayers, who have agreed to buy the Property as original
purchasers) over the whole or part of the subject matter of the original
contract (which HMRC consider means in accordance with paragraph 1(7)
of Schedule 2A the whole or a part of the land to be conveyed rather than
a part of a beneficial interest in the whole of it).
7.4.3 In any event a minimum consideration rule for connected persons
transactions, in paragraph 12 of Schedule 2A, applies which requires that
for the purposes of paragraph 1 of Schedule 4 FA 2003 (chargeable
consideration) two other amounts are determined and if one or both are
higher than the consideration that would otherwise be taken as given, the
higher of those other amounts is taken. The first amount is (broadly) the
amount under the original contract and the second is (broadly) the net
amounts given under the first and second contracts (subtracting what the
intermediate seller receives from what he pays but not going below zero).
7.4.4 In any event the anti-avoidance rule in paragraph 18 of Schedule 2A
operates to preclude sub-sale relief. Paragraph 18 applies to “tax
avoidance arrangements”, being arrangements where, having regard to all
the circumstances, it is reasonable to conclude that the obtaining of a tax
advantage was the main purpose or one of the main purposes of the
arrangements. HMRC consider this rule is not overreached by section 75A
FA 2003.
7.4.5 In any event the TAAR in section 75A FA 2003 would have substantive
effect to impose the SDLT that the purchase price paid to the vendor
would indicate.
7.5 The Company has commented on the points in 7.4.3, 7.4.4 and 7.4.5 in
representations but we have not seen comments on 7.4.1 or 7.4.2.
7.6 We note that the papers we have seen do not discuss whether the GAAR (Part 5
Finance Act 2013), which is based on substantially the same test as that
ultimately involved in Schedule 16, might have applied. The GAAR has however
been in place for SDLT since 2013 and we briefly mention the Guidance below.
We also note recent Tribunal cases involving annuities planning which have been
adverse to the taxpayers taking them. They are Hannah [2021] STC 436, M&M
Builders (Norfolk) [2021] STC 975 and Newton [2019] UKFTT688. One of those
cases (M&M Builders) is addressed in representations and comments to us and

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 we touch on it below. We are conscious that the cases, whilst they may have
some relevance to technical points made in representations, involved
differences in the facts and detailed planning steps and that the outcome of
them would not have been known in 2018.

8. The framework for the GAAR Panel’s work

8.1 The way the GAAR Panel is to operate in relation to a referral under Schedule 16
is set out in paragraphs 33 et seq; paragraph 34(4) provides:
(4) In forming their opinions for the purposes of sub-paragraph (3)
members of the sub-panel must—
(a) have regard to all the matters set out in the referral statement,
(b) have regard to the matters mentioned in paragraphs (a) to (c) of
paragraph 3(3) and paragraph 3(4), and
(c) take account of paragraph 3(5) to (7).

8.2 Paragraph 3 of Schedule 16 reads as follows:

(1) Arrangements are “tax arrangements” for the purposes of this Schedule if,
having regard to all the circumstances, it would be reasonable to conclude
that the obtaining of a tax advantage was the main purpose, or one of the
main purposes, of the arrangements.
(2) Tax arrangements are “abusive” for the purposes of this Schedule if they
are arrangements the entering into or carrying out of which cannot
reasonably be regarded as a reasonable course of action in relation to the
relevant tax provisions, having regard to all the circumstances.
(3) The circumstances to which regard must be had under sub-paragraph (2)
include—
(a) whether the substantive results, or the intended substantive results,
of the arrangements are consistent with any principles on which the
relevant tax provisions are based (whether express or implied) and
the policy objectives of those provisions,
(b) whether the means of achieving those results involves one or more
contrived or abnormal steps, and
(c) whether the arrangements are intended to exploit any shortcomings
in those provisions.
(4) Where the tax arrangements form part of any other arrangements regard
must also be had to those other arrangements.
(5) Each of the following is an example of something which might indicate
that tax arrangements are abusive—
(a) the arrangements result in an amount of income, profits or gains for
tax purposes that is significantly less than the amount for economic
purposes.

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 (b) the arrangements result in deductions or losses of an amount for tax
purposes that is significantly greater than the amount for economic
purposes.
(c) the arrangements result in a claim for the repayment or crediting of
tax (including foreign tax) that has not been, and is unlikely to be,
paid.
but a result mentioned in paragraph (a), (b) or (c) is to be taken to be such
an example only if it is reasonable to assume that such a result was
not the anticipated result when the relevant tax provisions were
enacted.
(6) The fact that tax arrangements accord with established practice, and
HMRC had, at the time the arrangements were entered into, indicated
their acceptance of that practice, is an example of something which might
indicate that the arrangements are not abusive.
(7) The examples given in sub-paragraphs (5) and (6) are not exhaustive.

8.3 We therefore consider in turn (summarising the provisions) whether:

• the results of the arrangements are consistent with the legislative
provisions
• there are contrived or abnormal step(s)
• there are shortcomings in the legislation
• the planning results in (broadly) an unintended mismatch with the
economic position
• the arrangements are in line with established practice and HMRC had
indicated their acceptance of that practice

9. What are the principles of the relevant legislation and its policy objectives? Are the
results of the arrangements consistent with those principles and objectives
(paragraph 3(3)(a) Schedule 16)?
9.1 On a straightforward purchase of the property by the Taxpayers the SDLT would
be £17,450 as indicated at 4.4 above. We need to consider whether the
additional steps, which the Company regards as attracting relief for a qualifying
sub-sale and then producing consideration based on the annuity rule in section
52 FA 2003, are consistent with the principles and objectives of the relevant
rules.
9.2 Taking first the Schedule 2A rules as they relate to sub-sales etc., we think it is
uncontroversial to summarise the policy as providing relief from a double charge
to SDLT where a purchaser under an original contract effectively is or becomes
an intermediary, while also guarding against avoidance. The original rules were
clearly relied upon extensively for planning, and indeed were considered in the
GAAR Guidance with an example at D.35, indicating that planning (including a

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 sub-sale between husband and wife) could be abusive, as well as in an earlier
HMRC avoidance Spotlight (referred to in the Guidance).
9.3 The rewrite in Schedule 2A is designed to make the rules better targeted and to
deter further avoidance. The background can be seen in a consultation
document of 17 July 2012 entitled “High-risk areas of the tax code: The Stamp
Duty Land Tax ‘transfer of rights’ or ‘sub-sale’ rules”. Within Schedule 2A the
objective of deterring avoidance is apparent both from the minimum
consideration rule in paragraph 12 and from the paragraph 18 anti-avoidance
rule, which stand as additions to the section 75A TAAR.
9.4 In the Company’s advice it is said that paragraph 18 (disapplication of relief
where there is avoidance) does not apply because it is “overreached” by section
75A and yet also that section 75A has no practical consequence. Even assuming
the Company’s analysis is correct (and assuming too that HMRC’s position that
Schedule 2A does not apply because the basic entry conditions are not met
could be addressed) that analysis would not appear to us to be consistent with
the principles and policy of the legislation. The anti-avoidance regime and the
FA 2013 rewrite seem to us to involve a clear “keep off the grass” sign of the sort
referred to in the GAAR Guidance at D2.7.
9.5 In later representations the Company makes a different or additional point on
paragraph 18, namely that the avoidance purpose is not established. There are
related comments, including about how purpose should be approached and how
the arrangements should be viewed. We note here that the paragraph 18
avoidance test is in material respects formulated in the same way as the “tax
arrangements” test in Schedule 16 that we are to assume is satisfied (compare
8.2, as regards paragraph 3(1) of Schedule 16, and 7.4.4 above). That test is in
turn essentially the same as the tax arrangements test in the GAAR. It includes
the standard of what it is “reasonable to conclude” about purpose from all the
circumstances.
9.6 We conclude on paragraph 18 that it evidences an objective to deny sub-sale
relief where arrangements are designed to exploit the relief. In this case sub-sale
relief is used as a means to introduce an alternative method of calculating a
lower level of tax (in fact no tax) under the annuity provisions and as such its use
is contrary to the objective.
9.7 We deal more briefly with other rules. On paragraph 12, the minimum
consideration rule, the Company’s position seems to be that the starting point
for comparison is consideration based on the full value of the annuity referable
to a redemption value, and the first and second minimum amounts are no
higher; the annuity rule then continues to apply to adjust the consideration to
the first twelve annual instalments. This approach, if correct, would seem to cut
across the anti-avoidance purpose of paragraph 12 as a protective rule for

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 connected person situations and to raise similar points to those in M&M
Builders (as to which see below).
9.8 It seems to us that there are similar points on section 75A.
9.9 Turning to the annuity regime in section 52 FA 2003 it is said by HMRC that the
objective is to establish a means of calculating SDLT where instead of a lump
sum price being due there is a promise to pay an annuity over an extended
period. The typical issuer of an annuity would be a life assurance company. In
M&M Builders it is observed, as the Company points out in representations, that
the regime is there to alleviate practical problems where the consideration for
SDLT would otherwise be difficult to determine. HMRC add that it is not a part
of the policy to allow husband and wife purchasers of a property for a price then
to enter into arrangements between themselves to allow the SDLT to be
eliminated. This seems to us to be correct. A related point is whether the
section 52 regime is intended to be a prescriptive code for annuities that applies
to the exclusion of other provisions. The Company asserts in representations
that it is. HMRC point to M&M Builders itself as indicating otherwise.
9.10 The point to bear in mind is that we are considering here the principles and
policy objectives of the statutory code rather than the legal effectiveness of the
arrangements.
9.11 Overall, we consider that the Company’s view of the arrangements – that no
SDLT was due – cannot be said to be consistent with the principles or objectives
of the legislation.

10. Does what was done involve contrived or abnormal steps (paragraph 3(3)(b)
Schedule 16)?
10.1 The starting point for this case is the agreement that the Taxpayers reached with
their vendor to purchase the Property for a cash price. No third-party was
involved, which means that a change in ownership proportions between Mr and
Mrs A, if needed, could have been agreed or revised before completion by much
simpler means.
10.2 The additional sale of equitable interest (between the original husband and wife
buyers) and annuity steps, including the perpetual annuity issued by a natural
person (by wife to husband), taken in consequence of the SDLT advice (for a fee
that was a percentage of the SDLT saving), are in our view contrived and
abnormal. It is said in representations that annuities may have other uses. But
here the steps have been added in the SDLT context to what is otherwise a
simple residential conveyancing transaction.
10.3 We should mention that when considering the view expressed in paragraph
10.2, we have had regard to paragraph 3(4) of Schedule 16, namely to the point
that the steps may be said by the Company to form a part of arrangements for
the purchase of the Property. Our opinion is unaffected by this. Abnormal and

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 contrived arrangements may form a part of or be related to a wider commercial
arrangement, in this case a house purchase.
10.4 We note that the terms of the annuity have not been laid out in detail for us in
the referral statement, but they appear to involve a perpetual right to payments
equivalent to (indexed) interest at a low rate on a lump sum due. The Company
in representations has referred to it as a debt and as a perpetual bond in respect
of which the capital can be called on demand. The features described do not
lead us to consider that the steps are any less contrived or abnormal.

11. Is there a shortcoming in the relevant legislation that was being exploited
(paragraph 3(3)(c) Schedule 16)?
11.1 If the arrangements were to succeed technically in the face of the substantive
objectives and the anti-avoidance rules summarised above (such that for
example the rules in paragraph 12 and 18 of Schedule 2A and the TAAR in
section 75A all have no material impact on the planning) we think it would
plainly follow that one or more shortcomings would have been exploited.

12. Does the planning result in:

(a) An amount of income, profits or gains for tax purposes which is significantly less
than the amount for economic purposes, or
(b) Deductions or losses for tax purposes which are significantly greater than the
amount for economic purposes, or
(c) A claim for the repayment or crediting of tax that has not been and is unlikely to
be paid and, if so, is it reasonable to assume that such a result was not the
anticipated result when the relevant tax provisions were enacted (paragraph
3(5) Schedule 16)?
12.1 Tests based on income, profits, gains, losses, and tax credits are not directly
applicable. But paragraph 3(7) of Schedule 16 tells us that the examples are not
exhaustive, and the overall theme of paragraph 3(5) is a mismatch between the
outcome of the planning if successful and what might be expected based on the
economic position (a sale of the Property to the Taxpayers for a simple price that
would attract SDLT as indicated at 4.4 above). The mismatch is clear.

13. Was what was done consistent with established practice and had HMRC indicated its
acceptance of that practice (paragraph 3(6) Schedule 16)?
13.1 HMRC state at paragraph 6.3 of the referral statement that the arrangements do
not accord with any established practice that HMRC had, at the time the
arrangements were entered into, indicated acceptance of; they go on to state
that ‘HMRC has consistently challenged these types of arrangements’.
13.2 The Company has not sought to dispute this statement.

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14. Discussion
14.1 We are required, under Paragraph 34(3) of Schedule 16, to give an opinion on
whether the entering into and carrying out of the tax arrangements was or was
not a reasonable course of action in relation to the relevant tax provisions. As
part of our consideration, we are required to have regard to all the matters set
out in HMRC’s referral statement. We must also have regard to representations
made to us.
14.2 We have not recorded all of the detailed points put to us in lengthy
representations. We have however taken into account the representations and
are clear in our conclusion that the entering into and carrying out of the tax
arrangements was not a reasonable course of action, in accordance with the
discussion above.
14.3 We have one additional observation as follows. The Company refers to an
opinion of Counsel, prior to the introduction of the GAAR, about an annuity
planning proposal which the Company says supports its position that the
arrangements are legally effective; it contends that since appropriate advice on
technical steps was taken it should follow that the course of action was
reasonable. We would observe that a basic element of the GAAR (as reflected in
the Guidance) is that arrangements that might otherwise be technically effective
may nonetheless be unreasonable (and might indeed fail a double
reasonableness test of abusive arrangements, which we do not address here).
Schedule 16, although dealing with cases where there has been a defeat, is in
material respects in similar terms. The Company’s reliance upon an opinion of
Counsel on (other) technical issues (whether or not justified) is not itself a factor
that concerns whether the arrangements are reasonable under the GAAR tests
referred to at 9. to 13. above. We also observe that the opinion was concerned
with a different proposal, did not involve any sub-sale considerations (including,
of course, the FA 2013 changes or the background to them), and pre-dated both
the GAAR itself and Schedule 16. It did however warn even then that the
planning would be regarded as “extremely aggressive tax planning”.

15. Conclusion
Each of the sub-Panel members is of the view, having regard to all the circumstances
(including the matters mentioned in paragraph 34 of Schedule 16 and taking account
of other relevant paragraphs of the Schedule) that the entering into and the carrying
out of the tax arrangements is not a reasonable course of action in relation to the
relevant tax provisions.

20 January 2023

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Appendix

Referral Statement - Paragraph 27 Schedule 16 Finance (No.2) Act 2017

2. Factual description of the arrangements in question (paragraph 27(2)(a))

2.1 The arrangements in question were carried out by Mr and Mrs A and related to their
purchaser of the Property. The arrangements in question consisted of the following
transactional steps:
 Original contract – joint purchase of residential property as Tenants in
Common in a 99:1 ratio (99% for Purchaser 1 and 1% for Purchaser 2).
 Second contract – agreement for sale of an equitable interest in the
residential property between Purchaser 1 and Purchaser 2 (‘the sub-sale’).
 Deed of Annuity – between Purchaser 1 and Purchaser 2 as consideration
for the sub-sale (‘the annuity’).
2.2 The arrangements in question were jointly entered into by:
 - Mr A (‘Purchaser 1’ or ‘P1’)
 - Mrs A (‘Purchaser 2’ or ‘P2’)
2.3 In October 2018 the Taxpayers entered into a contract with a third-party vendor to
purchase the property at an agreed sale price of £549,000 (‘the original contract’).
Completion was anticipated to take place in the period 1 to 31 January 2019.
2.4 At or around the same time the Taxpayers entered the contract, they sought tax advice
from the Company in relation to the purchase of the Property. In response, the
Company provided the Taxpayers with an engagement letter and a tax advice letter,
both of which were undated.
2.5 The engagement letter set out the services to be provided and the fee for providing
them. In the letter, the Company confirmed that they would provide tax advice and put
in place all the necessary arrangements they considered appropriate for the purpose
and said that while they did not guarantee they would be able to mitigate the entire
SDLT liability that would otherwise arise, they would make reasonable endeavours to do
so.
2.6 The tax letter provided the Taxpayers with tax advice on the acquisition of the Property.
The letter set out the steps required to implement the arrangements and the
consequences of taking them as follows

“SDLT Advice
The tax advice we are offering involves the following transactional steps, based on
the acquisition of [the Property] by yourselves, with a purchase price of
£549,000:

1. You would exchange contracts as normal with your Vendor (‘V’).

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2. Your solicitor will inform your vendor that you intend to take the title as
“tenants in common” in the ratios 99:1 (Mr A - 99%, Mrs A – 1%). If this is
incorrect, please let us know asap.

3. Mr A would then enter into an agreement for sale under a declaration of

trust, in favour of Mrs A, to hold 81% of the whole, on completion of the
original purchase, paid for by the grant of an annuity from Mrs A to Mr A.

4. The Annuity, to be granted at completion in consideration of the sale of the

beneficial interest has a capital value of £449,136.90 (at a 1% uplift of the
original contract price for that interest) at a yield of 0.25% giving an annual
payment of £1,122.84

Your solicitors would then take completion of the contract with the vendor, as
normal, and register the TR1 originally offered to the vendor’s solicitor and signed by
the vendor.

Because you have entered into the declaration of trust for the sale of the beneficial
interest, and the annuity, the net effect is that the SDLT payable by Mrs A calculated,
partially, in line with the rules on annuities plus the original 1%. Mr A (having made a
“freestanding transfer” of 81% of your rights) is only liable to tax on your resulting
18% interest.

The Ownership Basis

You will hold the property as “tenants in common” i.e., each of your interests is
“separable” and could, in theory, be sold or disposed of independent of the other.
The effect of the declaration of trust is that beneficial ownership is not in the same
ratio as that shown on the land registry after the completion of the transaction, but
the tenancy in common still exists at law.

The SDLT Calculation

SDLT is calculated by reference to the consideration given by each party for their
interest as follows:
Mr A 18% interest, being 18% X £549,000.00 in cash = £ 98,820.00
Mrs A 1% interest, being 1% X £549,000.00 in cash = £ 5,490.00
Mrs A 81% interest, being £449,136.90 X 0.25% X 12 = £ 13,474.11
Total Chargeable Consideration = £117,784.11
SDLT on Total Chargeable Consideration of £117,784.11 @ 0% = £ 0.00”

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2.7 In early 2019 the Taxpayers completed the original contract, purchasing the property at
the agreed sale price of £549,000. The Land Registry form, TP1, was completed on the
same day with Mr and Mrs A both named as transferees whose details were to be
entered on the register.
2.8 On the same day as completion, in accordance with transactional step 3 as set out in the
tax advice letter, the Taxpayers entered into an agreement for the sale of an equitable
interest in the Property (i.e., the sub-sale). Under this agreement Mr A purportedly sub-
sold 81% of his 99% interest in the Property to Mrs A in consideration of her agreeing to
grant him an annuity based on an agreed value of £449,136.90 and payable in perpetuity
annually at a rate of 0.25 per cent of that amount (the amount paid said to be “retail
prices index linked”), or £1,122.84 per annum (a basis on which it would take 400 years
to recover the value given in return for the annuity).
2.9 Also, on the same day Mrs A as Grantor entered into a “Deed of Annuity” in favour of
Mr A as Annuitant (‘the annuity’). Under this agreement Mrs A purportedly agreed to
pay Mr A an annuity of £1,122.84 for life / in perpetuity in consideration for Mr A
transferring to her 81% of his 99% interest. The amount of the annuity payment was to
be adjusted each year in line with the retail prices index.
2.10 Shortly thereafter the Taxpayers’ conveyancer, Z, electronically filed two SDLT1
returns (‘SDLT1#1’ and ‘SDLT1#2’) on their behalf. Both of the returns were completed in
accordance with the advice the Company had provided in relation to the arrangements.
In the Company’s tax advice letter to the Taxpayers, they stated, in relation to Z that:
“We understand that you are using the lawyers Z who are dealing with your conveyance.
They are experts in property law and are also familiar with the specialised area of law
and processes relating to this tax advice.”
2.11 The SDLT1#1 return was filed on behalf of Mr A alone and reflected the following
instructions the Company provided to Z concerning how to complete the return:
“All details as regards the original purchase from Vendor to Mr A with all
details regarding standing information required in the return as normal.
However, on Page 2 – the tax calculation –
1. The proportion sub-sold had an original chargeable consideration of
£444,690.00
2. Because of the sub-sale, relief must now be claimed in respect of this
sale in box 10 insert £444,690.00
3. Enter Relief Code 34 in box 9
4. Tax due = Nil [or amount] in box 14”
2.12 The return SDLT1#2 was filed on behalf of Mr A and Mrs A and reflected the
following instructions the Company provided to Z concerning how to complete the
return:
“Because the chargeable consideration in respect of the interest sub-sold
is higher than the corresponding cash amount it must be used in this

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 situation and is limited however by appropriate statute (S52 FA03) as it is
an annuity. The chargeable consideration calculation is as follows:
ABOUT THE TAX CALCULATION
1. Box 9 – tick “No”
2. Chargeable consideration given by Mr A in respect of the 18% retained
by him = £98,820.00
3. Chargeable consideration given by Mrs A in respect of the 1% retained
by her = £5,490.00
4. Chargeable consideration given by Mrs A to Mr A for the 81% interest
equals 12 x £1,122.84 = £13,474.11
5. The total of chargeable consideration (box 10) is 2 + 3 + 4 =
£98,820.00 + £5,490.00 + £13,474.11 = £117,784.11…
8. Box 14 – Insert amount of tax due - £.00 (tax due per calculation).”
2.13 The Company issued an invoice notification to Mr A and Mrs A for £5,816.67 plus
VAT, amounting to the VAT inclusive agreed fee of £6,980 for tax advice on the
acquisition of the property.
2.14 A few days later Z, as the Taxpayers’ conveyancer, dispersed sums to the
Company in relation to these fees. The fee of £5,816.67 (ex VAT) equated to one-third of
the £17,450.00 SDLT that would have arisen had the arrangements not been
implemented.

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