TIMOTHY WATTS v THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS [2024] UKUT 00168 (TCC)
| Jurisdiction | UK Non-devolved |
| Judge | Judge Rupert Jones,Judge Ashley Greenbank |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Published date | 12 June 2024 |
UT Neutral citation number: [2024] UKUT 00168 (TCC)
UT (Tax & Chancery) Case Number: UT-2023-000031
Upper Tribunal
(Tax and Chancery Chamber)
TAX AVOIDANCE – INCOME TAX – loss determination on disposal of gilt strips – paragraph 14A
Schedule 13 Finance Act 1996 – grant of option to trustee followed by assignment of option to a third
party purchaser – payments made by purchaser to trustee for assignment of option to purchase and
to taxpayer for exercise of the option - whether the FTT erred in including the amount paid by the
purchaser to the trustee as a person other than the transferor as part of the ‘amount payable on the
transfer’ under para 14A(3)(b) – appeal dismissed
Hearing venue: The Rolls Building
London EC4A 1NL
Heard on: 12-13 March 2024
Judgment on 12 June 2024
Before
JUDGE RUPERT JONES
JUDGE ASHLEY GREENBANK
Between
TIMOTHY WATTS Appellant
and
THE COMMISSIONERS FOR HIS MAJESTY’S
REVENUE AND CUSTOMS
Respondents
Representation:
For the Appellant: Aparna Nathan KC and Colm Kelly, Counsel, instructed by Anthony Collins
solicitors
For the Respondent: Jonathan Davey KC and Joshua Carey, Counsel, instructed by the General
Counsel and Solicitor for His Majesty’s Revenue and Customs
2
DECISION
Introduction
1. Mr Watts (‘the Appellant’) appeals the decision of the First-tier Tribunal (‘the FTT’) dated 7
November 2022 (‘the Decision’) released as [2022] UKFTT 408 (TC). References in square
brackets [] are to paragraphs in the Decision of the FTT unless the context requires otherwise.
2. While allowing the appeal in small part, the FTT substantially rejected the Appellant’s
grounds for appealing a closure notice and amendment to his tax return issued by HMRC for
the 2003-2004 tax year (the ‘2004 Return’). In the 2004 Return, the Appellant made a claim
for income tax losses sustained in consequence of his purchase and sale of gilt strips. The
claim for loss relief was made pursuant to paragraph 14A, Schedule 13 to the Finance Act
1996 (‘FA 1996’) as was then in force. HMRC denied the claim to a purported loss of
£1,349,600 in the closure notice. The FTT upheld HMRC’s denial of the Appellant’s loss
relief claim finding that the scheme did not work. It held that the quantum of loss claimed in
the 2004 Return was to be reduced by over 99%, from £1,349,600 to £6,300 ([178]).
3. In summary, the FTT found the scheme involved the following. The Appellant purchased
some gilt strips for £1.5 million. He granted an option to purchase the gilt strips to a trust of
which he was a life tenant and beneficiary (for which he the trust paid just under £1.34 million)
with an exercise price of £150,400. The trustee assigned the option to Investec Bank (UK)
Ltd (‘Investec’) for a price of £1,346,200. Investec exercised the option and paid the
Appellant £150,400 (the exercise price) to purchase the gilt strips. The net result of all the
composite transactions, the outcome of which was pre-planned and by which the Appellant
was repaid around £1.489 million in total, was that the Appellant lost only a few thousand
pounds in transferring the option to purchase the gilt strips to the trustee and the exercise of
the option to Investec.
4. The key question for the FTT, as it is for us, is whether and to what extent the Appellant had
sustained a loss for the purposes of paragraph 14A. This requires calculating the difference
between ‘the amount paid by [the Appellant]’ for the gilt strips of £1.5 million and ‘the amount
payable on the transfer’ of the strips. Is ‘the amount payable on the transfer’, only the
£150,400 Investec paid to the Appellant for the exercise of the option to purchase them or
does it also include the £1.347 million Investec paid to the trustee for the assignment of the
option? If it includes both payments, as the FTT found, then the loss on which the Appellant
can claim tax relief is the loss of a few thousand pounds. The FTT found that it is to be
calculated by reference to the £1.5 million the Appellant paid for the gilt strips minus the total
of £1.497 million Investec paid to the trustee and Appellant respectively for the assignment
and exercise of the option to purchase the strips.
5. In large part therefore, the appeal to the Upper Tribunal turns on the proper construction of
the phrase 'the amount payable on the transfer' within paragraph 14A(3)(b). The FTT found
the phrase should be construed to include both payments made by Investec to the trustee and
to the Appellant which enabled it to acquire the gilt strips. The Appellant submits that the
FTT erred and a proper construction only captures Investec's payment of £150,400 to the
Appellant for the exercise of the option to purchase the strips because that was the only amount
paid or payable for the transfer of an interest in the strips. Therefore, the Appellant submits
that the true loss claimable is the sum of £1,349,600.
Grounds of Appeal
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