In Olivia Wilkinson and others v HMRC  TC 08887, the First Tier Tribunal (FTT) decided that HMRC was not able to deny Capital Gains Tax (CGT) relief on a share-for-share exchange that subsequently allowed the daughters of a company's owner to claim Entrepreneurs' Relief (ER) after a take-over. The CGT planning exercise was not one of the main purposes, nor the main purpose, of the deal.
- Mr and Mrs Wilkinson owed about 56% of P Ltd on 14 July 2016. They Gifted their three daughters 6,951 shares from a combined shareholding of 51,000.
- P Ltd was sold on 18 July 2016 to TFI Ltd for approximately £130 million.
- Under the terms of the sale under a Share-for-Share Exchange, each daughter received £10 million nil rate payment 'A' loan notes and 500 B ordinary shares in exchange for their shareholdings in P Ltd, and was appointed a director of a 100% subsidiary of P Ltd, the appointments to last for at least one year.
- Advance Clearance had been received from HMRC.
- A year later each of the daughters redeemed their loan notes for £10 million and sold their shares in TFI Ltd to an affiliated company of TFI Ltd at their nominal value (£50).
- HMRC raised an assessment for CGT, denying share-for-share relief on the basis that one of the main purposes of the CGT planning scheme (whereby the daughters would get ER) was the avoidance of CGT.
- The taxpayers Appealed.
The FTT found that:
- There was no CGT planning scheme.
- Mr and Mrs Wilkinson would have proceeded with the sale even without their daughters being able to claim ER.
- Proportionally, the tax saved only represented a small amount of the total (the value of the tax planning was about £3 million whereas the proceeds to the family were about £73 million).
- s.137 TCGA 1992 was not engaged because CGT planning including the claim for ER was not one of the main purposes, nor the main purpose, of the deal.
The appeal was allowed.
Useful guides on this topic
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CGT: Gifts, At a glance
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Business Asset Disposal Relief (Entrepreneurs' Relief): At a glance
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Appeal: How to appeal an HMRC decision?
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