The tax office has failed in its attempt to reclaim as much as £50m in stamp duty from the near-£1bn sale of the Chelsea Barracks to Qatar.
Judges at the court of appeal ruled that HM Revenue & Customs had pursued the wrong party following the sale of the central London site in 2007.
The decision, first reported by the BBC, highlights the complexity of UK tax law when the tax office itself has been wrongfooted.
Richard Murphy, director of Tax Research UK, said: “This needs to be a serious kicking for the people involved, including the senior management of HMRC. We cannot run a tax authority on the cheap.”
HMRC described the three judges’ decision as disappointing. “The court of appeal ruling supports our view that SDLT [stamp duty land tax] is payable. We are disappointed that the decision makes that tax much harder to collect so we are considering an appeal,” it said in a statement.
Project Blue, a company owned by Qatar’s sovereign wealth fund, the Qatar Investment Authority, used an instrument called an ijara. It works as a leasing arrangement to comply with Islamic law, which forbids the charging of interest. That meant Qatar’s Masraf al-Rayan bank was the formal owner of the property.
A tribunal ruled in December 2014 that £38m of stamp duty land tax should be paid, based on the £959m sale price. However, this decision was then taken to the court of appeal.
HMRC then sought stamp duty land tax of £50m against the £1.25bn paid by the bank to Project Blue – a figure that included other development costs along with the purchase price.
Lord Justice Lewison said in the judgment: “Under an ijara arrangement, a bank or other financial institution buys the asset that the customer wishes to acquire and then leases that asset to him.
“The rent is calculated in such a way that the bank will receive a return on its investment. The customer will also have an option to buy the asset. However, it is critical to appreciate that the bank will be the real owner of the asset for the term of the lease, and the customer will not.”
Project Blue told the BBC: “In good faith, Project Blue Ltd paid the full original sum demanded in advance of the first tier tribunal hearing in 2013. We welcome the important clarifications provided by the court of appeal. Project Blue Ltd has always fully complied with all UK taxation matters and will continue to do so.”
The 13-acre site on Chelsea Bridge Road, between the Thames and Sloane Square, was sold to Qatar by the Ministry of Defence.
Construction on the first phase of apartments, many of which are expected to cost tens of millions of pounds, did not begin until last year. The development was beset by delays including a high-profile intervention by Prince Charles, who objected to Richard Rogers’ original modernist design.
The Qatar Investment Authority has interests in a raft of prime properties in London, with stakes in the Shard and the Canary Wharf estate. It is also the largest shareholder in Sainsbury’s and has a significant stake in Barclays, which it helped avoid a government bailout in the wake of the financial crash.
