Shinelock Limited v The Commissioners for HM Revenue and Customs [2023] UKUT 00107 (TCC)
| Jurisdiction | UK Non-devolved |
| Judge | Judge Thomas Scott,Judge Asley Greenbank |
| Subject Matter | 15 May 2023 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Published date | 17 May 2023 |
Neutral Citation: [2023] UKUT 00107 (TCC) Case Number: UT/2021/000202
UPPER TRIBUNAL
(Tax and Chancery Chamber) Royal Courts of Justice, Rolls Building,
Fetter Lane, London EC4A
CORPORATION TAX – chargeable gain on disposal of property – whether payment made by
disposing company to controlling party was a deductible loan relationship debit – whether
such payment was a distribution – whether FTT decided issues on basis of arguments which
had not been pleaded – raising “new” issues in an FTT hearing – appeal dismissed
Heard on: 6 and 7 February 2023
Judgment date: 15 May 2023
Before
JUDGE THOMAS SCOTT
JUDGE ASHLEY GREENBANK
Between
SHINELOCK LIMITED Appellant
and
THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS
Respondents
Representation:
For the Appellant: Patrick Boch, Counsel
For the Respondents: Michael Ripley, Counsel, instructed by the General Counsel and
Solicitor to His Majesty’s Revenue and Customs
1
DECISION
INTRODUCTION
1. Shinelock Limited (“Shinelock” or the “Company”) appeals against the decision of the
First-tier Tribunal (Tax Chamber) (the “FTT”) reported at [2021] UKFTT 320 (TC) (the
“Decision”).
2. The FTT dismissed Shinelock’s appeal against amendments made by HMRC to
Shinelock’s self-assessment for the accounting period ended 31 March 2015. Those
amendments increased the corporation tax payable for that period by £18,854. The corporation
tax arose in respect of a chargeable gain which HMRC considered had arisen to Shinelock in
respect of the disposal of a property.
3. The arguments between the parties changed considerably in the course of their dispute.
By the time of the hearing before the FTT, the issues related to whether Shinelock was entitled
to set off against the gain on the property disposal a payment which had been made by
Shinelock. Shinelock argued that the payment was a deductible deficit under the loan
relationships code. HMRC applied to strike out that argument on the basis that the FTT had no
jurisdiction to consider it. HMRC argued in the alternative that the payment by Shinelock was
not a loan relationship deficit because it was a distribution.
4. The FTT decided that:
(1) The FTT did have jurisdiction to consider the loan relationship argument.
(2) The payment by Shinelock was not a distribution.
(3) Nevertheless, that payment was not deductible as a loan relationship deficit to
offset the chargeable gain. As a consequence, Shinelock’s appeal was dismissed.
5. Shinelock appeals against the decision at (3). By way of Respondents’ Notice HMRC
challenges the decisions at (1) and (2).
FACTUAL BACKGROUND
6. The following summary is taken from the Statement of Agreed Facts
1
annexed to the
Decision (the “Statement of Agreed Facts”), together with additional findings of fact made by
the FTT.
7. References below to paragraphs in the form [x] are to paragraphs of the Decision, unless
stated otherwise.
8. Shinelock was a private limited company. Its business was “other letting and operating
of own or leased real estate”. As at 16 December 2008 its annual return showed that all but one
of its shares were held by Mr Ayaz Ahmed (“Mr Ahmed”), who was also the sole director of
the Company. He resigned as a director on 31 December 2014.
9. The property acquired and sold by Shinelock was 8 Trumpsgreen Road, Virginia Water
(the “Property”).
10. The Property was purchased at auction on 31 March 2009 for £725,000. Mr Ahmed was
the successful bidder, and he paid the deposit from his own bank account, but Shinelock was
registered as owner of the Property.
11. For the purposes of the transaction relating to the sale of the Property, Mr Ahmed was
non-UK resident.
1
Curiously, this is divided into “Agreed Facts” and “Disputed Facts”.
2
12. Under a contract in the form of a verbal agreement (the “Contract”), Shinelock had to
pay Mr Ahmed any “capital gain” on disposing of the Property in return for certain financing
or guarantees provided by Mr Ahmed. The FTT noted that the verbal agreement was lacking
in detail, particularly as to calculation of any capital gain. Also, although Shinelock’s
obligation was stated to be “in return for financing or guarantees” provided by Mr Ahmed,
there were no direct guarantees provided by Mr Ahmed.
13. On 16 April 2009 Habib Bank Limited (the “Bank”) (of which Mr Ahmed was the Chief
Financial Officer) offered a loan facility of £950,000 to Shinelock (the “Loan Facility”), which
was accepted by Shinelock on that date. The purpose of the facility was to enable Shinelock to
purchase the Property and to redeem existing mortgages over two other properties owned by
Helptravel, another company of which Mr Ahmed was a director. The loan was limited to 75%
of the market value of the secured properties. The terms of the Loan Facility were identical to
those which had been offered by the Bank to Mr Ahmed on 9 April 2009.
14. The total amount required to complete the purchase of the Property was £792,000.
15. Shinelock drew down £843,875 from the Loan Facility on 13 May 2009.
16. Mr Ahmed provided cash of approximately £280,000 to Shinelock as follows:
(1) £72,500 paid on exchange of contracts for the Property from the personal account
of Mr Ahmed on the day of the auction.
(2) On 12 May 2009, a loan of £175,000 to purchase another property.
(3) On 2 June 2009, £30,000 for Stamp Duty Land Tax.
17. The FTT found that Mr Ahmed had lent £277,500 to Shinelock
2
.
18. Over the period when Shinelock owned the Property, it was rented for commercial
purposes, with a period of vacancy. The rental income was paid into a bank account specified
by Mr Ahmed and not directly controlled by Shinelock
3
. In relation to all properties owned by
companies under the control of Mr Ahmed, including Shinelock, Mr Ahmed decided how
expenses, including loan expenses, and income would be distributed amongst various bank
accounts.
19. Shinelock was the legal and beneficial owner of the Property throughout the relevant
period.
20. The Property was sold on 4 December 2014 for £1,030,000.
21. The gain on sale of the Property before expenses and CGT indexation allowance was
£305,000. Shinelock paid that amount to Mr Ahmed (the “Payment”).
22. The chargeable gain attributable to Shinelock was £94,270, and the resultant corporation
tax due was £18,854. Shinelock did not declare the chargeable gain on its tax return for the
period ended 31 March 2015. Mr Ahmed reported it in his personal tax return for the year
ended 5 April 2015, but no tax was due because he was a non-UK resident.
23. The Property was shown in Shinelock’s accounts for the year ended 31 March 2010, as
was the loan from the Bank. The accounts for that and other years contained an entry in relation
to related party disclosures stating that all asset purchases were financed by or guaranteed by
the Company’s ultimate controlling party (Mr Ahmed) in exchange for the capital gains
thereon.
2
[60]-[64].
3
Statement of Agreed Facts paragraph 69.
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