Adrian Kerrison v The Commissioners for Her Majesty's Revenue & Customs, TC 05800
| Jurisdiction | UK Non-devolved |
| Judge | SARAH FALK |
| Judgment Date | 19 April 2017 |
| Neutral Citation | [2017] UKFTT 0322 (TC) |
| Respondent | The Commissioners for Her Majesty's Revenue & Customs |
| Appellant | Adrian Kerrison |
| Reference | TC 05800 |
| Court | First-tier Tribunal (Tax Chamber) |
[2017] UKFTT 0322 (TC)
TC05800
Appeal number: TC/2011/09337
Income tax and capital gains tax – “bed and breakfast” scheme to generate
capital loss under s 106A TCGA – claim to income tax relief for the loss
under s 574 ICTA 1988 – whether “repo” rules in s 263A TCGA, value
shifting rules in s 30 TCGA or Ramsay principles applied to prevent loss
arising – whether waiver of loan to appellant gave rise to a receipt subject to
income tax under s 687 ITTOIA 2005 (income not otherwise charged) –
appeal allowed in part
FIRST-TIER TRIBUNAL
TAX CHAMBER
ADRIAN KERRISON Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY’S Respondents
REVENUE & CUSTOMS
TRIBUNAL:
JUDGE SARAH FALK
Sitting in public at The Royal Courts of Justice, The Strand, London WC2A 2LL
on 20 to 23 February 2017
David Ewart QC and Edward Waldegrave, instructed by Reynolds Porter
Chamberlain LLP, for the Appellant
Julian Ghosh QC, Katherine Apps and Charles Bradley, instructed by the
General Counsel and Solicitor to HM Revenue and Customs, for the
Respondents
© CROWN COPYRIGHT 2017
2
DECISION
1. This appeal relates to claims the appellant made in his tax return for the year
2006-07 in respect of certain transactions carried out in 2006. The appellant claimed 5 that the transactions gave rise to a capital loss of £1,102,655, and further claimed
relief from income tax in respect of £1,083,984 of the loss. Following an enquiry into
the return HMRC issued a closure notice on 10 August 2011. The closure notice
concluded that the claims should be denied and that one of the transactions, a loan
waiver, gave rise to a charge to income tax on the amount waived. The total income 10 tax arising from the amendments made by the closure notice was £820,222.04. The
appellant appealed against the closure notice.
2. There is no dispute between the parties that the relevant transactions were entered
into by the appellant in order to give rise to a loss. The appellant’s position is that this
is not relevant to the tax analysis. 15
The transactions in outline
3. The scheme that the appellant entered into was designed and promoted by Premier
Strategies Limited (“PSL”), a company in the Tenon group of companies. It was
known as the Excalibur scheme. The appellant was one of a number of participants.
The key transaction steps and their intended tax analysis can be described relatively 20 straightforwardly, and it is convenient to summarise them here to explain how the
scheme was intended to work. A detailed description of the steps is set out from [14]
below.
4. In outline the steps were as follows:
(1) A new company, Broadgate Trading Limited (“Broadgate”), was 25 incorporated in the Isle of Man and acquired a small UK retail trade.
(2) The appellant subscribed for 20 shares in Broadgate at their par value.
(3) The appellant sold his shares to an unconnected company, Braye
Finance Limited (“Braye”), for a similar sum and granted Braye a put
option to sell the shares back to him within 30 days for their “fair value” 30 plus 9.1%.
(4) Braye borrowed to subscribe for one share in Broadgate at a very
significant premium (the amount reflected the participation of other
scheme users as well as the appellant). Broadgate guaranteed the
borrowing. 35
(5) Braye exercised the option and sold 20 shares back to the appellant for
around £1.1m. Braye repaid its borrowing. This step was funded by
borrowing by the appellant, which was also guaranteed by Broadgate.
(6) Broadgate capitalised a British Virgin Islands (“BVI”) subsidiary,
Broadgate Group Holdings Limited (“Holdings”). Holdings advanced an 40
3
interest-free loan to the appellant which repaid his bank borrowing. The
interest-free loan was subsequently written off.
(7) The appellant donated his Broadgate shares to a charity.
5. The intended tax analysis was that the sale and repurchase from Braye would fall
within s 106A Taxation of Chargeable Gains Act 1992 (“TCGA”), such that the 5 shares acquired from Braye would be identified with the shares disposed of to Braye
for capital gains tax (“CGT”) purposes, giving rise to a substantial capital loss on the
basis that the appellant had acquired shares for a significant sum and sold them for a
nominal amount. The appellant would be entitled to claim relief against income tax in
respect of the loss under s 574 Income and Corporation Taxes Act 1988 (“ICTA”). 10 The disposal to charity was a “no gain no loss” disposal (s 257 TCGA).
6. The relevant legislation, as in force for 2006-07, is set out in the appendix to this
decision. In summary, s 106A(5) TCGA provides that if within a period of 30 days
after a disposal the person making the disposal acquires securities of the same class,
then the securities must be identified with securities acquired by him in that period 15 rather than with other securities. Section 574 ICTA permits relief from income tax to
be claimed in respect of an allowable loss for CGT purposes which is incurred by an
individual on the disposal of shares which he or she subscribed for in a “qualifying
trading company”.
The issues in dispute 20
7. By the date of the hearing the parties had agreed a list of issues for the Tribunal to
determine, reflecting various ways in which HMRC have sought to challenge the
intended tax analysis. I have summarised these below in the order in which I intend to
address them. A further potential area of challenge, relating to the application of s
144ZA TCGA to the put option, was not pursued. 25
Issue 1: HMRC contend that the sale of the shares by the appellant to Braye and their
subsequent repurchase fall to be disregarded for CGT purposes by virtue of s 263A
TCGA, read with s 730A ICTA (the “repo” rules).
Issue 2: If the appellant would otherwise be treated as having realised a loss on the
sale and repurchase, then the value shifting rules in s 30 TCGA have the effect that 30 the loss should be reduced to nil.
Issue 3: Ramsay principles apply to prevent the scheme achieving its intended effect.
The potential alternative approaches under Ramsay are:
(1) all the transactions should be ignored: the appellant started with
nothing and ended with nothing; 35
(2) either or both of the appellant’s subscription for shares and his disposal
of those shares to charity should be respected, but the other transactions
should be ignored; or
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