In Trustees of Panico Panayi A&M Settlements and Redevco Properties UK v HMRC [2026] EWCA Civ 744, the Court of Appeal (CoA) upheld the Upper Tribunal's decision that, by way of a conforming interpretation, UK legislation could be read as permitting exit tax liabilities to be paid in five equal annual instalments when the taxpayers moved their tax residences abroad.
The trustees of the Panico Panayi A&M Settlements (Panayi) and Redevco Properties UK 1 Limited (Redevco) moved from the UK to another EU member state.
- The Panayi settlement gave up its UK residence in 2004 when new trustees were appointed, the majority of whom were Cyprus resident.
- UK-incorporated company Redevco Moved its place of effective control and management to the Netherlands in 2010.
- In each case, HMRC applied an exit charge under Capital Gains Tax (CGT) rules.
- The assets were treated as disposed of and immediately reacquired at market value, giving rise to a charge on the unrealised gains.
- The taxpayers argued that the exit charges were contrary to EU law and its principle of ‘freedom of establishment'. The central issue throughout the ensuing litigation was whether the exit charge legislation should be disapplied entirely or instead interpreted so it complied with EU law.
- The taxpayers separately appealed to the First Tier Tribunal (FTT).
In 2015, the FTT referred questions about the trustees' appeal to the Court of Justice of the European Union (CJEU).
- The CJEU confirmed that:
- The UK's exit charge in itself was not unlawful, but requiring immediate payment without the option of deferral was disproportionate.
- Whether the asset had been sold before the tax liability was due for payment was irrelevant.
- Payment in instalments over five or ten years was proportionate.
- The UK's exit charge in itself was not unlawful, but requiring immediate payment without the option of deferral was disproportionate.
- The FTT subsequently found that:
- The exit charge did not need to be disapplied entirely since a conforming interpretation was possible.
- A 'conforming interpretation' requires courts to interpret domestic legislation, so far as possible, compatibly with EU law.
- The UK exit charge tax law could be read as including an option to defer payment of the exit charge by paying in five equal annual instalments.
- The FTT also made observations suggesting that no interest would be payable, other than on late payments.
- The exit charge did not need to be disapplied entirely since a conforming interpretation was possible.
- The FTT in Redevco's appeal made a similar decision but did not refer to interest.
- The taxpayers appealed to the Upper Tribunal (UT).
The UT found that:
- The exit charge did not need to be disapplied entirely since there was an available conforming interpretation of the exit charge law. The legislation should be read as including an option to defer payment by paying the tax in five equal annual instalments.
- The FTT had erred in law by saying that there would be no liability of interest, and set aside that aspect of the decision.
- The taxpayers appealed to the Court of Appeal (CoA).
The CoA found that:
- The FTT and UT correctly identified that the breach of EU law was not the exit charge itself, but rather the absence of an option to defer payment.
- The conforming interpretation 'went with the grain' of the legislation, meaning it was consistent with its structure and purpose. It did not amount to judicial legislation.
- Any adverse consequences for the taxpayers stemmed from the inherent retrospectivity of judicial interpretation, not from breaches of EU law.
- The FTT had not, in fact, determined any issue relating to interest, with the result that the UT had no basis to interfere on that point.
The appeals were dismissed.
Useful guides on this topic
Non-Resident Trusts
When is a trust non-resident? What are the UK tax implications of a non-resident trust? What are the UK tax implications for any beneficiaries? What are the UK administrative requirements for a non-resident trust?
Company residence: At a glance
How is company residence established? What tests are applied by the courts?
UK trusts
What is a trust? What types of trust are there? How are UK trusts taxed?
Transfer of Assets Abroad (ToAA)
Anti-avoidance legislation can create a different form of 'exit charge' to the one in this case. What are the TOAA rules? When do they apply? How is the tax charge calculated? Is there any defence against the rules?
External links
Trustees of Panico Panayi A&M Settlements and Redevco Properties UK v HMRC [2026] EWCA Civ 744