In Craig William Burley v HMRC [2025] TC09613, the First Tier Tribunal (FTT) found that a taxpayer remained entitled to, and therefore subject to Income Tax on, partnership profits. This was despite an assignment of his partnership interest to a Limited Liability Partnership in which he had no profit share.
On 9 June 2023, HMRC issued Mr Burley with five Closure Notices, which assessed additional Income Tax totalling £465,967 across five tax years. HMRC asserted that he remained entitled to partnership profits following an assignment of his partnership interest to a Limited Liability Partnership (LLP).
- Around 2000-2002, Mr Burley, a former professional footballer, invested in two partnerships which engaged in sale and leaseback transactions involving film rights.
- Initially, they generated losses, which Mr Burley used to offset against other income. In later years, the partnerships produced profits.
- To fund his investment, Mr Burley borrowed substantial loans from banks.
- The income generated by the partnerships was used to repay these loans directly, meaning Mr Burley did not receive cash distributions.
- Mr Burley claimed tax relief on the loan interest payments.
- In 2011, Mr Burley signed a Minute of Agreement, which assigned his rights to the partnership income to an LLP, of which he was a member.
- Another member of the LLP was Craig Burley Limited (CBL), and that company was allocated the profits in the LLP's accounts.
- Mr Burley argued that this assignment meant he was no longer entitled to the partnership income and therefore not liable for Income Tax on it. He did not include the profits on his tax returns for the relevant tax years.
- HMRC contended that Mr Burley remained entitled to the income, as it continued to be used to discharge his personal loan obligations.
- They argued that the assignment was either legally ineffective or, even if valid, did not alter the Income Tax liability, as he still benefited from the income.
- HMRC relied on the Ramsay principle and the Court of Appeal's decision in Thomas William Good v HMRC [2023] EWCA Civ 114. This held that a taxpayer remained taxable on the underlying income as he was still entitled to receive it, as he had retained a benefit.
- Mr Burley Appealed to the First Tier Tribunal (FTT).
The FTT found that:
- Mr Burley remained entitled to the income.
- Applying a realistic appraisal of the commercial substance of the arrangements, they concluded that the profits continued to benefit Mr Burley, as they were used to repay his personal loans.
- This benefit was sufficient to establish entitlement under section 8 ITTOIA 2005.
- The LLP's accounting treatment of crediting CBL with the income did not determine Mr Burley's tax liability.
- Accounting entries must reflect economic reality and cannot override statutory interpretation.
- The LLP received no real benefit from the assignment, and Mr Burley's capital account was debited as the income was used to repay his debts.
Although the above findings were sufficient to dismiss the appeal, the FTT also considered the validity of the assignment.
- The FTT concluded that the assignment was likely a future chose in action, requiring consideration to be effective in equity.
- There was insufficient evidence of consideration from the LLP, and the Minute of Agreement was not signed until January 2011, meaning it could not affect earlier tax years.
- The assignment was subject to pre-existing security rights held by the banks, which had priority over any rights conferred on the LLP.
- Even if the assignment was valid, it transferred little or no economic value to the LLP.
The appeal was dismissed and the closure notices upheld.
Useful guides on this topic
Closure notices
When does HMRC issue a Closure Notice? Can a taxpayer demand one? Are there appeal rights?
Not possible to assign film scheme income
In Thomas William Good v HMRC [2023] EWCA Civ 114, the Court of Appeal (CoA) found that a taxpayer who assigned his income from a film scheme income to another, remained taxable on the underlying income: as he was still entitled to receive the income as he had retained a benefit.
How to appeal an HMRC decision
Disagree with an HMRC decision? How do you appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?
External link