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The DV3 RS Limited Partnership acquired what was the Dickens & Jones department store on Regent Street in December 2006.  The transaction was structured as a sale from the original vendor to DV3 Regent Street Limited (the 98 per cent limited partner in the DV3 RS Limited Partnership) and a sub-sale from DV3 Regent Street Limited to the partnership.

This was an SDLT mitigation structure that was widely used at the time to reduce the SDLT payable on acquisition by using a combination of sub-sale relief with the special computational provisions that applied to the contribution of land from a partner into a partnership.  The amount of SDLT at stake was over £2.5m, but the taxpayer argued that none was payable.

The 25 page long judgment is the first to go through the SDLT legislation in any detail and has some interesting points of analysis that may be useful to practitioners looking at other schemes that have employed similar tactics.  After a detailed review of both the partnership SDLT code (in schedule 15 of FA 2003) and, in particular, the sub-sale provisions in section 45 of FA 2003, the tribunal concluded that, even on a purposive interpretation of the legislation, the fact that one limb of a transaction was effectively exempt from charge didn't mean that the other limb shouldn't (or couldn't) also be effectively exempt.

It has been widely known for some time that HMRC have lined up a series of cases of SDLT planning which they are intending to take to the tax tribunal in the near future.  For now, taxpayers who engaged in SDLT planning schemes like the one used by DV3 can take comfort from this decision that SDLT planning (prior to 6 December 2006 when the so-called SDLT "anti-avoidance" rule was introduced) was not the impossibility that HMRC intended it to be when SDLT was brought in by Finance Act 2003.

With the scheduled increase in SDLT rates for residential property costing over £1m due to come into force on 6 April, a win for the taxpayer here may give some taxpayers encouragement to try to engage in ever more aggressive planning to mitigate that increased charge.

Any taxpayers with open enquiries on schemes based on similar facts shouldn't celebrate too soon, a loss for HMRC on this first case is almost certain to be appealed and is unlikely to deter them from pursing the other cases that we understand they have lined up to be heard later this year.

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