In Assem Allam v HMRC [2021] UKUT 0291, the Upper Tribunal (UT) found that the Transactions in Securities provisions did not apply when a wealthy entrepreneur sold his property company to his trading group for nearly £5m in cash, despite earlier clearance being denied. There was no evidence of any tax avoidance motive.

The UT also found that Entrepreneurs’ Relief (ER) did not apply to the disposal and Business Investment Relief had been correctly withdrawn. On a procedural issue, they held that tax returns issued electronically had been validly issued, meaning subsequent enquiries and closure notices were valid.

Dr Allam was a Non-domiciled UK Resident claiming the Remittance Basis who owned three UK-resident close companies with his wife.

    1. The closure notice denying ER was appealed on the basis that ADL was not undertaking non-trading activities to a substantial extent.
    2. The TiS counteraction notice assessing the proceeds from the share sale to Income Tax was appealed on the grounds that tax avoidance was not the purpose (or one of the main purposes) of the transaction.
    3. The payments of the unpaid dividends were not chargeable disqualifying events for Business Investment Relief as they did not repay non-qualifying investments.
    4. He also appealed on the basis that the Self Assessment filing notices he had received were not validly issued  rendering the enquiry and closure notices invalid. The filing notices had been issued automatically, and not by an officer of HMRC as required by the legislation. 

The First Tier Tribunal (FTT) dismissed the first, third and fourth ground of appeal, but allowed the second. It found that:

  1. Whilst ADL had some development activities they were, to a substantial extent, not trading activities. It was a property investment company and not a trading company and ER was denied
  2. Any Income Tax benefit was merely incidental and not a main purpose to the sale of the shares in ADL. It came to this decision despite the fact that HMRC had declined to grant tax clearance for a similar transaction in 2009, and that the transaction enabled Dr Allam to use up £2m of CGT losses. It accepted Dr Allam's evidence that the motive was personal one and commercial: he wanted to invest the case elsewhere.
  3. The unpaid dividends were part of a single investment with the loans on which Business Investment Relief had been claimed. The payments were repayments of those loans and should be treated as remittances to the UK and taxed accordingly. Double taxation relief was due for Egyptian tax already paid on these amounts.
  4. Although the filing notices were automatically issued, the FTT followed the decision of the Upper Tribunal in Rogers and Shaw and agreed that returns made in response to automated notices remain returns made under s.8 TMA. Enquiries opened into those returns were valid and this part of the appeal was dismissed

The parties appealed the decision to the UT:

The UT found that:

1.     The activities of ADL were substantially non-trading and ER did not apply:

2.      The TiS provisions did not apply:

3.     The withdrawal of Business Investment Relief could not be overturned by the UT as:

4.     The tax returns had been validly issued:


The decision in this case on the Transactions in Securities (TiS) issue may turn some heads. 

For the TiS to apply, certain conditions must be met. Tax avoidance has to be a main motive, or one of the main motives. HMRC's long standing guidance is that in most cases there is a tax advantage to be had by extracting cash as capital and not as income and that if you seek the lower tax route you must therefore have a tax avoidance motive. The UT does not agree:

a) Dr Allam was able to convince the FTT that tax avoidance was not the main motive: he was wealthly and had received enough past dividends (£34m) not to care about tax: it was simpler for him to sell the property company to his new group than execute a share for share exchange just to extract £5m.

b) The UT, drawing on the House of Lords's decision in CIR v. Brebner [1967] 2 AC 18, confirmed that the existence of an alternative transaction which has a different tax result does not necessarily mean that a transaction with a lesser tax result is undertaken for a main purpose of tax avoidance. Something to bear in mind.

Useful guides on this topic

Transactions in Securities
This note examines the rules for an Income Tax advantage from the perspective of shareholders.

Business Asset Disposal Relief (Entrepreneurs’ Relief): Disposal of a business
Entrepreneurs' Relief (ER) was renamed Business Asset Disposal Relief (BADR) by Finance Act 2020. When does BADR apply? What is the rate of BADR? How to claim BADR. Case law on BADR.  

SRT: Statutory Residence Test
What is the statutory residency test? Why is it important and how does it work?

Non-domicile status, deemed domicile & tax
Who is non-UK domiciled? What does this mean for UK Income Tax, Capital Gains Tax and Inheritance Tax? What reliefs are available to non-doms?

Remittance basis (overseas income)
What is the remittance basis? Who can claim it and when? What are the advantages of claiming the remittance basis and how much is the remittance basis charge?                                     

Business Investment Relief
Business Investment Relief is a special relief for non-UK domiciled individuals designed to encourage them to remit funds to invest in UK businesses.

External links

Assem Allam v HMRC [2021] UKUT 0291

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