Allam
| Jurisdiction | UK Non-devolved |
| Judgment Date | 12 May 2020 |
| Neutral Citation | [2020] UKFTT 216 (TC) |
| Date | 12 May 2020 |
| Court | First Tier Tribunal (Tax Chamber) |
[2020] UKFTT 216 (TC)
Judge Ashley Greenbank, Mrs Rayna Dean
Keith Gordon, counsel, instructed by Jacksons Chartered Accountants, appeared for the appellant
Sadiya Choudhury, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, and Dr Jeremy Schryber, litigator of HM Revenue and Customs' Solicitor's Office, appeared for the respondents
Procedure – Enquiry into returns made following automated notice requiring return – Whether TMA 1970, s. 12D applies to treat notice of enquiry under TMA 1970, s. 9A and closure notice under TMA 1970, s. 28A as valid – Yes – Appeal dismissed.
Capital gains tax – Entrepreneurs' relief – Property development and investment company – Whether trading company – TCGA 1992, s. 165A(3) – No – Appeal dismissed.
Income tax – Transactions in securities – Whether main purpose or one of the main purposes of person being a party was to obtain an income tax advantage – ITA 2007, s. 684(1)(c) – No – Appeal allowed.
Income tax – Remittance basis – Business investment relief – Whether unpaid or reinvested dividends treated as an investment – Whether payment of unpaid or reinvested dividends was a potentially chargeable event – ITA 2007, s. 809VG – Appeal dismissed.
The First-tier Tribunal has reviewed its earlier decision (in Allam [2020] TC 07532) and set aside the decision in relation to business investment relief as it contained an error of law. In remaking the decision, the taxpayer's appeal was dismissed.
The remade decision in relation to business investment relief is summarised below. The remaining appeals were unchanged and are as reported at [2020] TC 07532.
Dr Allam had claimed business investment relief in relation to a loan of just under £7m to Allamhouse, a company controlled by Dr and Mrs Allam. It was accepted by all parties that the loan was a “qualifying investment” for the purposes of s. 809VC(1)(b) and that the funds applied in making the loan should be treated as not remitted to the UK under s. 809VA(2). Prior to the making of the loan, dividends had been declared that were payable to Dr and Mrs Allam, but the dividends had been left outstanding and treated in Allamhouse's accounts as amounts due to Dr and Mrs Allam. When payments were made to the Allams representing repayment of the dividends, HMRC argued that, because qualifying investments and any other investments made in the company were treated as aggregated into a single holding by virtue of s. 809VN, repayment of the loans constituted a part-disposal of the single holding and was therefore a potentially chargeable event within s. 809VH leading to the withdrawal of business investment relief.
In the original decision, the FTT agreed with HMRC because, although payment of a dividend would not normally be treated as a part-disposal of an investment, in this case steps had been taken by Dr Allam indicating that he was reinvesting the dividend payments (albeit for a relatively short time) and putting them at the disposal of the company. Consequently, the outstanding dividends should be regarded as a loan which fell within the definition of “investment” in s. 809VC. However, although Mrs Allam would also, on the same basis, be treated as making a loan to Allamhouse, the appeal only related to the assessment on Dr Allam. The potentially chargeable event was a disposal of all or part of the holding by the “relevant person who made the investment”. The investment referred to was the qualifying investment made by Dr Allam, who was the relevant person and only his holding should be taken into account. Thus, only the dividends attributable to Dr Allam fell to be treated as repayments of his loan and the appeal was in part allowed. However, on re-examining the original decision, the FTT concluded that because Mrs Allam was a “relevant person” by reference to Dr Allam (s. 809M(2)(b)) the loan that she was treated as having made fell to be treated as part of the same single investment and single holding as that of Dr Allam (s. 809VN(3)(b) and (4)(a)). Thus the payments of outstanding dividends to both Dr and Mrs Allam would be treated as part-disposals of the single investment and single holding in Allamhouse referred to in s. 809VN(4).
Consequently, the appeal in relation to business investment relief would be dismissed in full.
The parties had made applications to appeal against various aspects of the earlier decision and, on reviewing that decision, the FTT took the unusual step of setting aside and remaking the earlier decision. It is not clear whether there will now be a further appeal in relation to other aspects of the earlier decision.
[1] This decision notice relates to appeals made by Dr Assem Allam against various decisions of the Commissioners for Her Majesty's Revenue & Customs (“HMRC”).
- The first appeal (under reference TC/2016/05008) relates to a closure notice issued by HMRC on 8 April 2016 at the conclusion of an enquiry into Dr Allam's tax return for the tax year 2011–12. In that closure notice, HMRC disallowed a claim by Dr Allam for relief from capital gains tax under Chapter 3 of Part V of the Taxation of Chargeable Gains Act 1992 (TCGA) (commonly referred to as entrepreneurs' relief) in relation to a disposal of shares by Dr Allam in Allam Developments Limited (ADL). The resulting adjustments to Dr Allam's tax return charged Dr Allam to additional capital gains tax of £524,034.72.
- The second appeal (under reference TC/2016/05009) relates to another closure notice issued by HMRC on 8 April 2016 at the conclusion of an enquiry into Dr Allam's tax return for the tax year 2013–14. In that closure notice, HMRC charged Dr Allam to income tax on income and gains remitted to the UK in respect of which Dr Allam had previously claimed relief under s809VA of the Income Tax Act 2007 (ITA) (commonly referred to as business investment relief). The resulting adjustments to Dr Allam's tax return charged Dr Allam to additional income tax of £1,305,000.
- The third appeal (under reference TC/2017/07537) is against a counteraction notice issued by HMRC under s698 ITA on 20 March 2017. The counteraction notice relates to the same disposal of shares in ADL that is the subject of the first appeal. The notice seeks to charge Dr Allam to additional income tax on the consideration for the sale of the shares. The related income tax assessment is in the amount of £1,318,298.10.
[2] In addition to his separate challenges to each of the decisions in the closure notices (i.e. in relation to the first appeal and the second appeal), Dr Allam raised a further challenge to the closure notices on the grounds that the relevant returns were not made in response to notices issued by an officer of HMRC. We have set out this argument in more detail under the heading “The Section 12D issue” below, but, in summary, Dr Allam asserted that the enquiry processes initiated by HMRC under s9A of the Taxes Management Act 1970 (“TMA”) and the subsequent closure notices were invalid and that this defect is not cured by s12D TMA, which was introduced by s87 of the Finance Act 2019 (“FA 2019”). We have referred to this ground of appeal as the “Section 12D issue” in this decision notice.
[3] The section 12D issue is affected by the decision of the Upper Tribunal in R & C Commrs v Rogers [2020] BTC 533 (“Rogers and Shaw”) which was issued after the hearing in this case but before the issue of this decision notice.
[4] The initial hearing took place in Leeds on 26 and 27 February 2019. At that hearing, we heard an application from Mr Gordon, on behalf of Mr Allam, to introduce the section 12D issue as a further ground of appeal in relation to the first and second appeals.
[5] Having heard argument from the parties, we agreed to admit the further ground of appeal. We did so on the basis that HMRC would be entitled to make further representations in writing following the hearing, if necessary, in response to that ground of appeal.
[6] Following the initial hearing, and having received further representations from the parties, we convened a further hearing, primarily to hear submissions from the parties on the section 12D issue. This hearing took place on 17 September 2019, also in Leeds.
[7] Dr Allam was represented by Mr Gordon at both the initial hearing and the hearing on 17 September 2019. HMRC was represented by Dr Schryber at the initial hearing and by Ms Choudhury at the hearing on 17 September 2019. We are grateful to them all for their submissions.
[8] We were provided with agreed bundles of documents. In the course of the hearings, we also accepted other documents in evidence. The documents included two witness statements from the appellant, Dr Allam, and witness statements from Mr Ehab Allam, the son of the appellant and a director of relevant companies, and Mr Mark Jackson of Jacksons Chartered Accountants, advisers to Dr Allam and some of the relevant companies.
[9] Dr Allam, Mr Ehab Allam and Mr Jackson all gave evidence and were cross-examined on their statements at the initial hearing.
[10] We have addressed the issues in the following order.
- First, we have dealt with the section 12D issue.The issue is essentially an issue of law. The relevant facts were agreed and can be stated shortly.
- Second, we have addressed some issues that are common to both the first appeal and the third appeal as they derive from the same underlying transaction.This section includes some of our findings of fact in so far as they are common to both appeals.
- Third, we have dealt with the first appeal, which relates to the claim for entrepreneurs' relief.This section includes further findings of fact which are relevant to the first appeal, taking into account the witness evidence, in particular the evidence of Mr Ehab Allam.
- Fourth, we have dealt with the third appeal, which relates to the counteraction notice under s698 ITA.This section...
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Allam v Revenue and Customs Commissioners
...to find no – Appeal dismissed – ITA 2007, s. 684(1)(c). The Upper Tribunal (UT) upheld the First-tier Tribunal (FTT) decision in Allam [2020] TC 07702, which had: found that enquiries had been validly opened; rejected a claim to entrepreneurs' relief; upheld the withdrawal of remittance bas......