Quentin Skinner 2005 Settlement L and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 06 August 2019 |
| Neutral Citation | [2019] UKFTT 516 (TC) |
| Date | 06 August 2019 |
| Court | First Tier Tribunal (Tax Chamber) |
[2019] UKFTT 516 (TC)
Judge Guy Brannan
Capital gains tax – Entrepreneurs' relief – TCGA 1992, s. 169 whether J Taxation of Chargeable Gains Tax Act 1992 – Trust business assets – Shares – Settlement business assets – Whether qualifying beneficiary must be a qualifying beneficiary throughout a period of one year ending not earlier than three years before the date of disposal – s. 169J(4) – Appeals allowed.
The First-tier Tribunal (“FTT”) allowed claims for entrepreneurs' relief by the beneficiaries of three trusts on the basis that they did not need to be “qualifying beneficiaries” throughout the period of at least one year in the last three years before disposal.
This case concerned the correct interpretation of the provisions in TCGA 1992, s. 169J and in particular whether or not a “qualifying beneficiary” (as defined) must have been a qualifying beneficiary throughout the period of one year (s. 169J(4)).
The facts were undisputed. The Appellants were three separate trusts settled by Mr Quentin David Skinner (“the Trusts”). On 30 July 2015, three individuals (“the Beneficiaries”) were given interests in possession in the whole of settled property under the Trusts. On 11 August 2015 Mr Quentin Skinner, by three separate deeds of gift, gave 55,000 D ordinary shares in DPAS Limited (“the Shares”) to each of the Trusts. The Beneficiaries each owned, since 2011, 32,250 C class shares granting full voting rights in the company.
On 1 December 2015, the Trusts disposed of the shares and on 31 January 2017 the Trusts and their Beneficiaries submitted self-assessment tax returns together with claims for entrepreneurs' relief (“ER”) in respect of their capital gains.
HMRC opened enquiries into the relevant tax returns on 16 January 2018 and closed them on 1 June 2018 concluding that ER was not due as the Beneficiaries had not each held an interest in possession in the Shares for the requisite 12-month period.
The Trusts appealed this conclusion to the FTT. For the purposes of the appeal, it was common ground that the Shares were settlement business assets (TCGA 1992, s. 169J(2)) and that the Beneficiaries were qualifying beneficiaries at the time of disposal of the Shares. DPAS Ltd was also accepted to be the personal company of each of the Beneficiaries.
In the absence of precedents on the correct interpretation of s. 169J(4), the FTT held that the words should be given their ordinary and natural meaning when read in context and construed purposively.
By way of comparison, pursuant to s. 169I, in direct disposals of business assets consisting of shares (or not including an interest under a trust), ER would be available provided that:
- the company is the individual's personal company; section 169S(3) provides that a company is an individual's personal company at any time when the individual holds at least 5% of the ordinary share capital of the company and that holding gives him at least 5% of the voting rights in the company; and
- the company is a trading company or the holding company of a trading group.
These two conditions being subject to sub-section (7) which imposed further restrictions in cases where the company has – within the three preceding years – ceased to be a trading company or a member of a trading group.
This meant that in ordinary cases, ER would be available in principle as long as conditions 1 and 2 above were satisfied, in respect of any the shares in the company. Or, as the Appellants submitted, as long as an “entrepreneurial connection” was established ER applied in principle to all shares disposed of.
The FTT accepted the Appellants' argument that it was Parliament's intention when enacting s. 169J(4), if read in context, to extend the “entrepreneurial connection” requirement to cases involving interests in possession under a settlement.
Despite the difference in wording between s. 169J(4) and 169I(5) and (6), Parliament's intention was clear and supported by the Explanatory Notes to the Finance Bill 2008 (which the FTT examined of its own volition). The natural reading of the reference to “qualifying beneficiary” in s. 169J(4)(a) was to a person who satisfied the definition in the immediately preceding s. 169J(3). In fact, the sole focus of s. 169J(4) was the characteristics of the company: a “personal company” in the one-year period ending in the three-year window; and a trading or a holding company of a trading group.
The FTT was unpersuaded by HMRC's attempt to use s. 169O as an aid to interpretation. In the FTT's judgment, it would be strange to find the meaning of a provision dealing with the primary qualifying conditions for a tax relief within the text of a provision dealing with apportionment like s. 169O. The appeals were therefore allowed.
This is the first appeal before the FTT dealing with the interpretation of the specific requirements in TCGA 1992, s. 169J(4). Whilst the Tribunal's interpretation appears sensible, it is likely that HMRC will consider their prospects of success on an onward appeal.
Michael Firth, counsel, appeared for the appellant
Christopher Vallis, litigator of HM Revenue and Customs' Solicitor's Office, appeared for the respondents
[1] These appeals concerned the question whether the appellants are entitled to entrepreneurs' relief (“ER”) under s169J Taxation of Chargeable Gains Tax Act 1992 (“TCGA”). HMRC issued closure notices dated 1 June 2018 to the effect that the appellants are not entitled to that relief and the appellants now appeal against those closure notices.
[2] The relevant facts are not in dispute – this appeal relates solely to the correct construction of the relevant statutory provisions. The relevant provisions provide:
throughout a period of 1 year … the company is the qualifying beneficiary's personal company … and the qualifying beneficiary is an officer or employee of the company
[3] In particular, it is disputed whether s169J(4) TCGA and s169J(4)(a) TCGA require the beneficiary under the settlements in question to have an interest in possession (and therefore be a “qualifying beneficiary”) throughout the period of 1 year. HMRC's case that they do and, therefore, that the appellants are not entitled to ER. The appellants argue that they do not and contend that they are entitled to ER.
[4] On 30 July 2015 Mr Ludovic Skinner, Mr Rollo Skinner and Mr Bruno Skinner (“the Beneficiaries”) were given interests in possession, under the L Skinner Settlement, the R Skinner Settlement and the B Skinner Settlement respectively, in the whole of the settled property.
[5] On 11 August 2015, by three separate deeds of gift, Mr Quentin David Skinner gave 55,000 D ordinary shares in DPAS Limited (“the Shares”) each to the L, R and B Skinner Settlements (“the Skinner Settlements”). The Beneficiaries had each held 32,250 C class shares, granting full voting rights, since 2011. As such, DPAS Ltd was a “personal company” of each of them (for the purposes of section 169S TCGA).
[6] On 1 December 2015 the Skinner Settlements disposed of the Shares (“the Disposals”).
[7] On 31 January 2017 the Skinner Settlements and respective beneficiaries each made claims for ER in accordance with section 169M TCGA.
[8] On 31 January 2017 the Respondents received the Skinner Settlements' tax returns for the year ended 5 April 2016 into which, on 16 January 2018, the Respondents opened enquiries pursuant to s.9A of the Taxes Management Act 1970 (“TMA”).
[9] On 1 June 2018 the Respondents closed the enquiries pursuant to s.28A TMA, concluding that “Entrepreneur's Relief is not due in this case as the beneficiary … had not held an interest in possession in the shares held by the trust for the requisite 12 month period.”
[10] The appellants now appeal to this Tribunal.
[11] ER is given under TCGA1 s.169N in respect of a “qualifying business disposal”:
(1) Where a claim is made in respect of a qualifying business disposal–
- the relevant gains (see subsection (5)) are to be aggregated, and
- any relevant losses (see subsection (6)) are to be aggregated and deducted from the aggregate arrived at under paragraph (a).
(2) The resulting amount is to be treated for the purposes of this Act as a chargeable gain accruing at the time of the disposal to the individual or trustees by whom the claim is made.
(3) The rate of capital gains tax in respect of...
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