In Ian Oscroft & Ors v HMRC [2026] TC09787, the First Tier Tribunal (FTT) agreed with HMRC's decision to tax capital receipts as income under the anti-avoidance 'Transaction in Securities' regime, but upheld the taxpayers' appeal due to HMRC's assessments being invalid.
Ian Oscroft and three other taxpayers appealed against counteraction notices and assessments issued by HMRC, who believed distributable reserves held by a subsidiary company should be considered as 'available' assets to the parent company under the anti-avoidance Transactions in Securities (TiS) regime.
The First Tier Tribunal (FTT) agreed with HMRC's treatment of the capital reduction scheme but upheld the taxpayers' appeal because HMRC's assessments were out of time.
- Whitemeadow Group Holdings Limited (WMGH), a Close company, was incorporated on 14 September 2010.
- In December 2010, WMGH issued 28,872 shares to Ian Oscroft and three others via a cash subscription.
- WMGH then acquired Whitemeadow Furniture Limited (WMF) by way of a Share-for-share exchange.
- Prior to acquisition, the shares in WMF were held by the four appellants.
- Following the above transactions, WMGH recognised a merger reserve amount of £1,861,922.
- In February 2016, WMGH proposed a bonus issue to shareholders in the same ratio as their current shareholdings. WMGH would then pay shareholders in the form of a repayment of share capital.
- No clearance was obtained from HMRC for the proposed transactions.
- Share capital was immediately reduced from £1,890,795 to £28,873 by cancelling shares totalling 1,861,922.
- The consideration for the capital reductions was £1,861,922; this was paid to the appellants' loan accounts.
- WMGH then borrowed £1,861,922 from WMF to repay the £1,861,922, following which cash totalling £1,861,922 was paid by WMGH to the appellants.
- Effectively, WMF provided funding to WMGH by way of a loan to enable WMGH to pay the consideration to Ian Oscroft and the other individuals.
- Ian Oscroft and the others declared the receipt as a capital receipt on their Self Assessment returns, with three of the appellants claiming Entrepreneurs' Relief (now Business Asset Disposal Relief).
The FTT found that:
- They agreed with HMRC's contentions that the distributable reserves of WMF were amounts which were available to WMGH at the time of the transaction.
- 'Relevant consideration' in these circumstances did encompass the distributable reserves of a wholly owned subsidiary.
- Taking into account the decision in Blue Project, the word 'available' is wide enough to encompass assets which the company controls, such that it can, in effect, 'gather in' those assets when it chooses.
- The distribution should therefore have been an income distribution and not a capital one.
Regarding the statutory time limits:
- HMRC had argued that s.698(5) ITA 2007 was the only time limit that applied to assessments under the TiS regime, with no requirement to reference the standard TMA 1970 time limits.
- The time limit in s.698(5) is six years from the end of the relevant tax year, as opposed to four years as detailed in TMA 1970.
- HMRC had issued the assessments within six years.
The FTT found:
- The TiS regime is not a self-contained regime.
- The TiS regime, via s.698, imposes a duty on HMRC to counteract a tax advantage using a range of existing powers set out elsewhere in statute, so an adjustment can be made. The effect is that the TiS regime gives HMRC the authority to use an existing power in circumstances where it would not otherwise be able to do so. Therefore, the regime is not self-contained.
- The wording in s.698(5) was intended to reassure that HMRC would not be allowed to use longer time limits than those set out in TMA 1970, rather than creating a separate time limit for the TiS regime.
- The assessments were therefore not raised within the statutory four-year limit.
The appeal was dismissed.
Useful guides on this topic
Transactions in Securities
What are the Transactions in Securities rules? When do they apply?
Transactions in Securities: Case studies
This guide contains potential case studies for the Transactions in Securities (TiS) rules.
TAAR: Distributions on winding up (anti-phoenixing rules)
When does the TAAR apply? Who does it affect? Can you apply for tax clearance? What rules affect striking off?
CGT: Share-for-share exchanges
How does tax relief for a share-for-share exchange work? What are the rules for an exchange of shares or securities? Are there anti-avoidance rules to consider? Is tax clearance needed?
External link