HMRC SDLT: SDLTM09160 – How to identify P where there are multiple candidates: Section 75A (1)(a)

Principles and Concepts of Identifying P in Section 75A

This section of the HMRC internal manual provides guidance on identifying ‘P’ when multiple candidates are involved under Section 75A(1)(a). It outlines the principles and concepts necessary for accurate identification.

• Clarifies the criteria for determining ‘P’ among multiple candidates.
• Explains the legal context and implications of Section 75A(1)(a).
• Provides examples and scenarios to aid understanding.
• Offers guidance on applying these principles in practical situations.

Understanding How to Identify P When There Are Multiple Candidates

This article looks at Section 75A(1)(a) of the tax legislation, specifically focusing on how to identify the person (P) in situations where several parties are involved in disposals and acquisitions of a chargeable interest. This guidance is essential for understanding how to navigate these complex scenarios effectively.

What Does Section 75A Cover?

Section 75A is a part of tax law aimed at preventing tax losses that can happen due to a series of related transactions, often referred to as “scheme transactions.” When multiple parties are involved, it can become unclear who qualifies as P—the person who benefits from the transactions.

The Problem of Multiple Candidates

In cases where there are several disposals and acquisitions of a chargeable interest, it can be challenging to identify who is P. A chargeable interest is any property interest that is subject to Stamp Duty Land Tax (SDLT). Here are some key points to consider:

• Multiple Parties: In a series of transactions, V may dispose of an interest, which could then be acquired by more than one party.
• Lack of Clarity: The law does not give explicit instructions on how to determine who P is in these circumstances.

Insights from Case Law: Project Blue Ltd v HMRC

In the case of Project Blue Ltd v HMRC, the courts addressed how to identify P when multiple candidates exist. Here are some valuable takeaways from the court’s ruling:

• Avoiding a Sequential Approach: The court dismissed the idea of simply selecting P in order of the transactions. Lord Hodge explained that this method does not align with the intention behind Section 75A.
• Purposive Approach: Instead of merely following the order of transactions, the court looked at what Section 75A is trying to achieve. The goal is to prevent losses in tax revenue caused by related transactions.

Determining Who is P

To properly determine who is P when faced with several potential candidates, you must follow a comprehensive analysis of the transactions involved. Here are the guiding principles:

• Consider All Transactions: Assess all transactions that are part of the scheme. This means looking beyond just the immediate transfer and understanding the full context of the activity.
• Identify the Beneficiary: Identify the individual or entity that ultimately benefits from the transactions. This is likely to be the person who is seen to have gained a tax advantage.
• Tax Liability Analysis: Think about who would have had to pay the tax if the structure of the transactions had been straightforward, without the schemes being in place.

Analyzing the Transactions

When working through the multiple transactions, it is essential to conduct a thorough analysis:

• Step 1: Gather Information – Collect all documentation related to the transactions, including contracts and agreements. This will give you a clearer view of what occurred.
• Step 2: Trace the Flow of Interests – Map out how the chargeable interest moved from one party to another. This helps in visualising the relationships between all involved.
• Step 3: Check for Patterns – Look for common threads or patterns that may indicate which party stands to benefit the most from the scheme.

Example Scenario

Let’s consider a practical example for better understanding:

• Transaction A: Party V sells a chargeable interest to Party X.
• Transaction B: Party X immediately sells the same interest to Party Y.
• Transaction C: Party Y then leases the interest to Party Z.

In this sequence, you would want to ask the following questions to determine who is P:

• Who has benefited the most out of these transactions?
• If there had been no scheme involved, who would have had to pay tax on the original sale?

In this example, if Party Z is making money through leases and wouldn’t have to pay tax under normal circumstances, then Party Z could be identified as P.

The Importance of Intent

An essential element when examining these transactions is the intention behind them. The courts have indicated that understanding why parties entered into these arrangements can shed light on who stands to gain the most. Here are a few considerations:

• Business Purpose: Did the transactions occur for a genuine business purpose, or were they structured primarily to gain tax benefits?
• Manipulation of Law: Was the transaction designed to exploit gaps in tax law? If so, that can impact who P is.

Documentation and Record Keeping

Maintaining detailed records of all transactions and their intentions is vital for any party involved. Here’s why:

• Transparency: Proper records can provide clarity when examining who benefits from transactions.
• Evidence: Documentation serves as evidence of intentions, helping to substantiate claims if questions arise later regarding who is P.

Practical Tips for Businesses

If your business is likely to be involved in such transactions, consider the following guidelines:

• Consult Tax Advisors: Regularly engage with tax professionals to ensure compliance and clarity concerning your transactions.
• Plan Ahead: Before entering into potentially complex transactions, plan thoroughly to understand the implications of Section 75A.
• Review Agreements: Before signing off on any agreements, review them for any potential tax implications.

Conclusion

Understanding how to identify P in transactions with multiple candidates requires careful consideration of all scheme transactions, identifying who ultimately benefits from those transactions. By applying the principles outlined in this guidance and taking a systematic approach to the analysis, businesses can ensure compliance with tax laws and avoid unnecessary complications.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09160 – How to identify P where there are multiple candidates: Section 75A (1)(a)

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