TC09562 - [2025] UKFTT 00762 (TC)

based on my conclusion as to a realistic view of the facts in this case, the payment of £50,800,000 which was made by BBUK to CPW under the SPA was consideration for the right to be paid amounts equal to a fixed percentage of the future gross revenues of the Businesses and not consideration for either the Goodwill or the Businesses, both of which remained in CPW;

those future gross revenues were a fundamental part of the future profits of the Businesses, as those future profits were simply a function of the future gross revenues of the Businesses minus the future expenses incurred in carrying on the Businesses – see paragraph 131 above. Moreover, the way in which the parties calculated the amount paid by BBUK for its right to receive payments equal to a fixed percentage of the future gross revenues was by reference to the expected future profits of the Businesses;

it is common ground that goodwill is the attractive force which generates the future profits of the business to which it relates. Consequently, it must be the case that the Goodwill in this case represented the future profits of the Businesses;

in the circumstances, although I agree with Mr Brinsmead–Stockham that CPW continued to own the Goodwill after the Agreements became effective, on a realistic view of the facts, after it had received the payment from BBUK, CPW had effectively given up its interest in part of the future gross revenues of the Businesses and, since those future gross revenues were a significant component of the future profits of the Businesses, I believe that that payment should properly be seen as a capital sum derived from the Goodwill and therefore as giving rise to a part disposal of the Goodwill;

as for determining the chargeable gain or allowable loss which arose from that part disposal, I agree with Mr Brinsmead–Stockham that, before the Appellant is able to establish that the whole of its re–acquisition base cost of £107,658,000 in the Goodwill should be allocated to the part disposal, the Appellant needs to produce some evidence to show that, following the part disposal, the market value of the Goodwill was nil. None of the evidence that I have seen in the course of this appeal compels that conclusion. I say that for two reasons.

The first and main one is that, based on my analysis of the transaction effected by the Agreements, CPW retained the right to a fixed percentage of the future gross revenues of the Businesses but remained subject to the obligation to meet all of the future expenses of the Businesses. It is not clear to me that, on the date when CPW received the capital sum, the difference between the present value of the future gross revenues which CPW was entitled to retain and the present value of the future expenses was either nil or a negative figure. It is perfectly possible that it was a positive figure. Indeed, the fact that the parties saw fit to reduce retrospectively (under the terms of the Side Letter) the fixed percentage of the future gross revenues which CPW was entitled to retain suggests that it was in fact a positive figure and that the parties subsequently wanted to re–balance the parties’ respective entitlements to the future gross revenues of the Businesses to give BBUK a better deal.

There is a second point, to which I have alluded obliquely in paragraph 161 above, which is that, in determining what portion of the future gross revenues of the Businesses CPW in fact retained, on a realistic view of the facts, it is not necessarily the case that that was only the 95% (or 91.19% as the case may be) to which reference was made in the MSA or the Side Letter. Instead, it is conceivable that, on a realistic view of the facts, the interest which BBUK was obliged to pay to CPW under the loan arising from the outstanding purchase price should properly be treated as having reduced BBUK’s entitlement to the future gross revenues of the Businesses and consequently as augmenting CPW’s retained entitlement to those gross revenues. That would inevitably affect the inputs into the part disposal formula and lead to a smaller allowable loss. Having said that, I can see that that would potentially involve some double counting because the loan pursuant to which the interest was payable funded the consideration of £50,800,000 which CPW received in making the part disposal. Nevertheless, it is an issue that I think would need to be considered in any resolution of Issue Seven. I do not have to address it in this decision; and

I do not see any procedural bar to the Respondents’ raising the valuation issue at the point when the tax consequences of the part disposal fall to be agreed or determined. Leaving aside the fact that, based on my conclusion on Issue Six, the part disposal issue is not a matter which falls to be addressed in this appeal, I agree with Mr Brinsmead–Stockham that, at the point when part disposal was mentioned in the grounds of appeal and the statement of case for this appeal, both parties were proceeding on the basis of an erroneous understanding of how any part disposal of the Goodwill would interact with the charge under Section 179(3).