This month’s Chartered Accountants tax case digest considers an appeal to the High Court by way of case stated by the Tax Appeals Commissioner concerning the availability of sub-sale relief from stamp duty, under section 46 SDCA 1999 on the conveyance of the legal title of a Shrewsbury Road property (“Walford”). The trust of beneficial interest arising from a contract to purchase Walford was subsequently assigned to a new trustee. The Appeal Commissioner in an April 2020 determination4 found that the later conveyance of the legal title by the new trustee had not met the conditions necessary to avail of sub-sale relief. The questions before the High Court was whether the Commissioner was correct in law in determining that the subs-sale relief conditions were not met, such that Yesreb Holdings Limited (“Yesreb”) was unable to avail of sub-sale relief, that Yesreb was the accountable person for the conveyance and that where sub-sale relief did not apply, the sub-purchaser is liable for stamp duty on the deed of conveyance, including the first sale.

Background

In 2005, Mr Dunne entered a contract to purchase Walford for €57.95 million (“the 2005 contract”). Shortly after Mr Dunne confirmed that his entire interest in the 2005 contract was held by him on foot of a property settlement agreement to ensure the financial independence of his wife and children in a document signed by himself and Ms Dunne (“the declaration of trust”). In an agreement dated October 2006, Matsack Nominees Ltd (“Matsack”) were appointed designated nominee along with Ms Dunne. The deed of conveyance in 2013 transferred a fee simple interest in Walford to Yesreb for €14 million. A liability of €270,000 was returned in the stamp duty return by reference to the €14 million consideration paid, and Ms Dunne and Matsack were the only named vendors. After enquiries, Revenue notified Yesreb in 2016 that stamp duty payable on the Walford conveyance was €1.4 million.

Appeal Commissioner

Commissioner Lorna Gallagher in her determination, having considered the statutory wording of section 46(1) SDCA 1999 and the judgment of Lord Wilberforce in Fitch Lovell5, established that the following three conditions must be met for a taxpayer to avail of sub-sale relief:

1. Identity – the purchaser in the main contract and the vendor under the sub-sale contract must be the same person, not the same name, but the same person.
2. In consequence – the conveyance must have been in consequence of both the original contract and the sub-sale contract and must arise from contracts which are enforceable by means of specific performance.
3. No intervening act – There must be no act other than the signing of the sub-sale contract, between the main contract and the execution of the conveyance.

The Commissioner was “satisfied” that Mr Dunne “… had no interest in the property and had no capacity to enter into a contract for sub-sale in respect of the property. The operation of s 46(1) SDCA does not accommodate the insertion of the name of the purchaser under the original contract into the sub-sale contract in circumstances where that purchaser no longer has capacity as vendor in respect of the sub-sale contract. The joinder of a person in a contract for sub-sale in circumstances where that person’s involvement is unnecessary or gratuitous does not enable a claim for sub-sale relief in accordance with s 46(1) SDCA.”

Appeal

Crux of the appeal

The crux of the Appeal concerned whether Mr Dunne had any interest to convey in the 2013 deed of conveyance. While accepting Yesrebs argument that section 46 focuses on the property being transferred, the Court considered that the section also requires the person who contracted to purchase the property originally and who sells in the sub-sale or sub-sales to have the same identity, such that any act involving a cessation of interest for that person before the sub-sale was not included within section 46. Yesreb was found to have failed to establish that the nominee agreement was not recognised by the relevant parties, and such a conclusion was supported by:

• Mr Dunne stating in other proceedings that he had ceased to be a trustee on the appointment of Matsak; and
• Matsacks’s entitlement to direct a conveyance of Walford was recognised in correspondence on behalf of the vendors to Mr Dunne and Matsack was obliged to hold the title documents.

Accordingly, the Commissioner was found not to have erred in her finding “that Mr Dunne ceased to hold a bear trusteeship”, as and from the date of the 2006 agreement to appoint Matsack as designated nominee.

Sub-sale relief

The Commissioners analysis using “identify”, “in consequence” and “no intervening” was considered to be without legislative basis by Yesreb, while Revenue urged the Court to look beyond the legislation in accordance with Fitch Lovell to determine its nature and intended purpose to confer a concession in order to avoid the imposition of double taxation. The Court considered the approach of the Commissioner to be helpful in explaining how a person who may have contracted to purchase a property cannot be considered to be a person who sub sells after losing all legal and equitable interests in the contract and property.

The Court considered that including Mr Dunne as a party to the 2013 conveyance did not rectify the fact that his interest had ceased. The intervening act of Mr Dunne ceasing to be a trustee in 2006 was found to mean that the purchaser in 2005 could not be the same person who agreed the conveyance to Yesreb. In commending the submission of Revenue that Yesreb’s stance would allow anyone without capacity to complete a sale be capable of availing of the relief, the Court detailed that the natural ordinary meaning of a “person”, when interpreting section 46, “means a person who can contract and complete the contracts for the sale of the relevant property”. The word person is not expanded upon by the legislation to accommodate arrangements entered into by the beneficial owner. The Court agreed with the Commissioner in that Mr Dunne was the beneficial owner of Walford until 2006, and thereafter had no interest because Ms Dunne offered her interest for sale by Matsack.

It was noted that section 46, as it exists today, is reduced in its availability and use for “resting on contract” type arrangements due to section 31(a) SDCA 1999 coming into force.

Accountable person

Substantial debate fell before the Court as to whether Yesreb was the transferee under the 2005 contact, such that it became the accountable person. Section 1 SDCA defines the accountable person as the “purchaser or transferee”, while section 7 requires distinct matters to “be separately and distinctly charged” as if they were separate instruments. In view of the fact that stamp duty legislation focuses on the property and the conveyance and in analysis of the operative part of the 2013 deed of conveyance, the Court concluded that while Mr Dunne may have been the purchaser in 2005, it is the instrument (conveyance) that is liable to stamp duty for the transfer of the title. Accordingly, the Court agreed with the Commissioner that neither section 7 nor section 45(4) SDCA applied to render Mr Dunne the accountable person on the 2005 consideration and that Yesreb as transferee was liable to stamp duty under the 2005 and 2013 contract for sale.

Conclusion

The availability of sub-sale relief is dependent upon the purchaser under the main contract being the same as the vendor under the sub-sale contract. Accordingly, where the trustee of the beneficial interest arising from a contract to purchase a property subsequently assigns to a new trustee, the later conveyance of the legal title by that new trustee was not a sub-sale for the purpose of relief under section 46(1) SDCA 1999.

The full judgment in this case is available from:- https://www.bailii.org/ie/cases/IEHC/2021/2021IEHC317.html.