Link: Case Summary Document
Citation:  UKUT 277 (The Upper Tribunal (Tax and Chancery Chamber), Warren J and Hetherington J)
Acknowledgement:The Pemsel Case Foundation thanks The Australian Centre for Philanthropy and Nonprofit Studies for its contribution in the drafting of this Case Note.
This English case dealt with the issue of the extent to which charities were exempt from stamp duty land tax (SDLT) in the UK. SDLT is a tax on land transfers, which replaced stamp duty in the UK in 2003.
The appellants appealed a decision by the Commissioners of HMRC (HMRC) which denied partial relief from SDLT in respect of certain property acquisitions. The relief had been claimed on the basis that the beneficial interest in the properties concerned was owned jointly (as tenants in common) by persons, one or more of which were either a charity or a Minister of the Crown and one or more others of whom did not fall into either of these categories, and relief should therefore be allowed in respect of the interests attributable to the charities or Minister of the Crown concerned.
The Pollen Estate Trustee Company (PETC) is the current trustee of the Pollen Estate, a trust for sale (its shares are ‘fully alienable’ i.e. able to be sold) established under the Will and Codicils of the Reverend George Pollen who died on 27 March 1812. The Pollen Estate has large holdings of land and buildings in the West End of London, which are bought and sold as needed.
The Pollen Estate has about 100 beneficiaries, some of whom are descendants of George Pollen and some of whom have bought their interest. Two of the current beneficiaries are the Church Commissioners for England (the Commissioners), a charity which holds a 64.109601% share of the Estate, and the Secretary of State for Defence, Greenwich Hospital, a Crown charity with its own governing Charter and statutes, which holds a 10.2257% share. In the case of the Greenwich Hospital (the Hospital), the Secretary of State for Defence is the sole trustee and holds all the assets of the Hospital on trust for the Queen, and for the exclusive benefit of the Hospital.
The case related to purchases of land and buildings. The Pollen Estate acquired three estates in fee simple and a leasehold, and Kings College London (KCL) purchased an existing leasehold interest in a building. In both cases the trustees were bare trustees (a bare trustee is one who holds property for beneficiaries who are absolutely entitled as against the trustee) for the holdings which were for the beneficial interest of the trusts, and held by them each as tenants in common.
In the case of the Pollen Estate all the properties were purchased as investments, and were not used at all by the beneficiaries of the trust. In the case of the KCL property, it was purchased as a home for a professor at KCL, who had an exclusive right to occupy the premises and legal title, but the property was owned by the KCL trust as a tenant in common.
The issue in the appeal was whether relief from SDLT was available to a charity or a Minister of the Crown where the purchaser acquires less than 100% interest in the property in question. The relevant legislation was the Finance Act 2003, particularly in Schedule 8. The Tribunal observed that Parliament clearly intended that charities and government entities should be exempt from SDLT where there was an ‘outright purchase’ of land, the purchase of an ‘existing undivided share’ of land, the grant of a lease, or an existing undivided share in a lease.
Paragraph 1(2) of Schedule 8 provides that the property acquired should be held for qualifying charitable purposes viz. the furtherance of the charity’s purposes or for an investment. HMRC contended that there was a joint purchase in these cases by a charity and a non-charity, so the exemption was not available for even the charity’s share. The trusts’ position was that the charities’ shares could be divided from the whole interest in the property.
After considering answers provided by counsel for HMRC, the Tribunal held that there were no policy reasons why the exemptions in this case should not be available. But who held 100% of the beneficial interest in the properties? The Tribunal held that in the case of the KCL lease, the relevant land transaction was the acquisition of the lease where two persons (the professor and KCL) became jointly entitled to the interest acquired, that interest being the entirety (100%) of the lease. Similarly, in the case of the Pollen Estate properties, the relevant land transactions were the acquisitions of each of those properties where more than two persons (the beneficiaries of the Pollen Estate) became jointly entitled to 100% of the beneficial interest. The Tribunal said (at ):
Our analysis… leads to the conclusion that the relevant land transaction for the purposes of SDLT is the acquisition of the entire property and not each separate acquisition of an undivided share by each tenant in common. It follows, we consider, that the relevant land transaction when it comes to applying the charity relief is also the acquisition of the entire property… Accordingly, references in paragraph 1(2) to ‘the subject-matter of the transaction’ would have to be read as a reference to the charity’s undivided share in that subject-matter.
This meant that the position of HMRC was vindicated in this appeal. Since the whole interests were involved and not partial interests, there could no partial relief from SDLT. As the Tribunal said (at ):
Since the purchaser of the [Pollen Estate] Properties was not solely a charity or charities or a Minister of the Crown, and the purchaser of the [KCL] Lease was not solely a charity, the respective claims for relief from SDLT fail. Accordingly, the Appeals of PETCL and KCL are dismissed.
Implications of this case
The argument in this appeal showed that there was a good deal of uncertainty about the interpretation of the exemption provisions for charity in the Finance Act 2003, even on the part of HMRC. The issue of dealing with tenants in common came under consideration in both the original Act and the Finance Act 2007 because to split the property transaction into seemingly several transactions (since tenants in common are usually unconnected persons) was seen to be a way of avoiding the tax, since the threshold for payment of the tax is £125,000: see at http://www.hmrc.gov.uk/sdlt/index.htm. The section dealing with the matter in both Acts, section 75A, was an anti-avoidance provision. The Tribunal was clear in this case that whether there was a charity involved or not, the purchase by persons as tenants in common was a single transaction for SDLT purposes.