Allam v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 23 November 2021 |
| Neutral Citation | [2021] UKUT 291 (TCC) |
| Year | 2021 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2021] UKUT 291 (TCC)
Mr Justice Edwin Johnson, Judge Jonathan Cannan
Upper Tribunal (Tax and Chancery Chamber)
Procedure – Automated notices requiring returns – Effect of FA 2020, s. 103 – Effect of TMA 1970, s. 12D – Whether notices of enquiry valid under TMA 1970, s. 9A – Yes – Appeal dismissed.
Capital gains tax – Entrepreneurs' relief – Company involved in property development and investment property – Nature and extent of activities – Whether a trading company– No – Appeal dismissed – TCGA 1992, s. 165A(3).
Income tax – Remittance basis – Business investment relief – Whether dividend left outstanding on loan account correctly treated as an investment – Yes – Appeal dismissed – ITA 2007, s. 809VN.
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 – FTT entitled 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 basis business investment relief; and confirmed that the transactions in securities rules did not apply.
The appellant (Dr Allam) disposed of his shareholding in Allam Developments Ltd (ADL) to Allam Marine Ltd (AML) for cash consideration of £4.95m. AML was owned by Allamhouse Ltd which was controlled, in turn, by Dr Allam and his wife.
Dr Allam appealed to the FTT in respect of HMRC's decisions: disallowing his claim to entrepreneurs' relief on his disposal of the shares; withdrawing remittance basis business investment relief; and applying the transactions in securities rules to the disposal. Dr Allam also submitted that closure notices issued to him were invalid as he had submitted returns in response to automated notices to file and therefore HMRC had no power to enquire into the returns.
The FTT held that:
- On the basis of the UT's decision in R & C Commrs v Rogers and Shaw [2020] BTC 533 (which was released between the FTT hearing and the release of its decision), Dr Allam's returns were made under TMA 1970, s. 8 and therefore the s. 9A enquiry notices were valid. Even if they were not the defective notices would have been cured by TMA 1970, s. 12D which had been introduced by FA 2019 to deal with voluntary returns.
- Given that ADL's main source of income was rental income, it was carrying on activities which to a substantial extent were non-trading activities and therefore it was not a trading company pursuant to TCGA 1992, s. 165A(3) and accordingly entrepreneurs' relief was not available.
- Dividends and loan repayments from Allamhouse to Dr Allam personally were potentially chargeable events within ITA 2007, s. 809VG on the grounds that the payments represented the disposal of all or part of [Dr Allam's holding] within ITA 2007, s. 809VH(1)(b) and as Dr Allam had not taken any appropriate mitigation steps (ITA s. 809VI) those amounts were treated as remitted to the UK at the end of the grace period of 45 days and included in Dr Allam's taxable income for the relevant period. Accordingly HMRC were correct to withdraw the business investment relief.
- The evidence did not support HMRC's position that the main purpose or one of the main purposes of the transaction was to obtain an income tax advantage for the purposes of ITA 2007, s. 684(1)(c) and therefore HMRC could not take counteraction under the transactions in securities rules against income tax advantages obtained.
Dr Allam appealed to the UT in respect of points 1, 2 and 3, and HMRC appealed in respect of point 4. The UT dismissed all the appeals.
In respect of the validity of the closure notices, the UT found that the FTT had been wrong to determine the issue on the basis of Rogers and Shaw as it had heard no submissions from the parties on the decision. However, applying FA 2020, s. 103 (which the FTT could not do as it had not at that stage been enacted), which had retrospective effect in validating the automated notices to file, validated the enquiries and subsequent closure notices. Even if s. 103 had not been available, the UT would still have agreed with the FTT on this point because, it considered that the FTT were right on the s. 12D Issue.
In respect of entrepreneurs' relief, the UT found no error of law or principle in the test applied by the FTT or in its approach to the application of that test. The FTT concluded that taking a holistic view, including taking into account development value, ADL was carrying on activities which were, to a substantial extent, not trading activities. The UT did not consider that there were any grounds for interfering with that conclusion, and in any event it agreed with it.
On the issue of the withdrawal of remittance basis business investment relief, the UT found no reason to consider that the FTT made any error of law or principle in finding that the outstanding dividend was added to Dr Allam's loan account, that it bore interest and that it became an investment by Dr Allam in Allamhouse. In doing so it rejected Dr Assam's submission that the dividend had not been added to his loan account, but had merely been recorded as such in the accounts as there was no other way to record it and instead it was an undrawn dividend.
In respect of the transactions in securities rules, the UT was satisfied that the FTT was entitled to find that Dr Allam did not have as a main purpose the obtaining of a tax advantage. In doing so the UT noted that there is no principle that the existence of an alternative transaction will always be a strong factor in identifying those purposes, and the significance of the alternative transaction will depend on the facts of the case. In respect of HMRC's criticism that the FTT only considered Dr Allam's conscious motives the UT could not see that sub-conscious motives were to be taken into account, although it accepted that inferences could be drawn from the primary facts as to a party's true motives.
This decision covers four distinct topics and while much of the UT's considerations are fact specific the decision also includes issues of wider interest. For example, when considering the transactions in securities rules the UT confirmed that there is no principle that the existence of an alternative transaction will always be a strong factor in identifying the purposes for which a taxpayer is party to a transaction, and sub-conscious motives do not need to be taken into account.
Philip Ridgway instructed by Jacksons Chartered Accountants appeared for the appellant
Sadiya Choudhury instructed by the General Counsel and Solicitor to HM Revenue and Customs appeared for the respondents
[1] This is an appeal against a decision of the First-tier Tribunal (Tax Chamber) (“the FTT”) released on 12 May 2020 (“the Decision”). The Decision had been re-released following a review by the FTT of an earlier decision dated 15 January 2020, but nothing turns on that for present purposes.
[2] There were three appeals before the FTT arising out of dealings by Dr Assem Allam (“Dr Allam”) in relation to the shares of Allam Developments Limited (“ADL”) and in relation to Allam Marine Limited (“AML”). Dr Allam challenges the decision of the FTT in relation to two of those appeals. HM Revenue & Customs (“HMRC”) challenge the decision of the FTT in the third appeal.
[3] In the first appeal, Dr Allam challenged a decision of HMRC that he was not entitled to entrepreneurs' relief for capital gains tax (“CGT”) purposes on a disposal of shares in ADL. The FTT dismissed Dr Allam's appeal and he appeals to this tribunal with permission of the FTT (“the First Appeal”).
[4] In the second appeal, Dr Allam challenged a decision of HMRC that he was liable to income tax on income and gains remitted to the UK on the withdrawal of what is commonly referred to as “business investment relief”. The FTT dismissed Dr Allam's appeal and he appeals against part of that decision to this tribunal with permission of the FTT (“the Second Appeal”).
[5] In the third appeal, Dr Allam challenged a decision of HMRC to issue a counteraction notice under the “transaction in securities” provisions in connection with the same disposal of shares in ADL as mentioned in the First Appeal. The FTT allowed Dr Allam's appeal and HMRC appeals to this tribunal with permission of the FTT (“the Third Appeal”).
[6] The three appeals arise out of Dr Allam's ownership and dealings with various companies in which he is interested. The FTT heard evidence from Dr Allam, his son Ehab Allam who was a director of some of the companies and Mr Mark Jackson of Jacksons Chartered Accountants, the companies' accountant.We shall deal with the three appeals and the FTT's findings of fact in relation to each appeal separately.
[7] We shall also deal separately with aspects of the First Appeal and the Second Appeal concerning the validity of the closure notices issued by HMRC which were under appeal to the FTT (“the Notices Appeal”). It is convenient to deal with the Notices Appeal first.
[8] All references to legislative provisions in this decision are to the provisions in force at the relevant times.
[9] The First Appeal is an appeal against a closure notice issued on 8 April 2016 at the conclusion of an enquiry into Dr Allam's tax return for the year 2011–12. Dr Allam filed that return on 13 November 2012 in response to an automated notice to file a return sent to him by HMRC. The enquiry was opened on 5 November 2013.
[10] The Second Appeal is against a closure notice also issued on 8 April 2016 at the conclusion of an enquiry into Dr Allam's tax return for the year 2013–14. Dr Allam filed that return on 8 August 2014 in response to an automated notice to file a return sent to him by HMRC. The enquiry was opened on 14 November...
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