UT/2021/000157 - [2024] UKUT 00110 (TCC)

An important issue to note at the outset is the narrow terms on which permission to appeal was granted. In view of that limited scope of permission, and also the grounds of appeal the Upper Tribunal refused, we do not consider that it would be right to address the entirety of Mr Tenconi’s case in the same terms as he has put it above. As already mentioned, Mr Tenconi was specifically refused permission on his proposed ground of appeal that argued the distribution rights could not constitute property because of their lack of transferability. By raising that same issue, but under the guise of an argument on disposal, Mr Tenconi is effectively seeking to resurrect a ground on which he was specifically refused permission to appeal.

We consider we must deal with Mr Tenconi’s arguments above through the lens of the limited scope of permission that has been granted. That is also the approach the respondents to the appeal, HMRC, have rightly restricted themselves to in formulating their response to Mr Tenconi’s appeal.

With that in mind, the core issue of law advanced by Mr Tenconi, that falls within the scope of permission is the following. Does the fact that the legal title to the distribution rights was not capable of transfer (because there was no provision for this in the articles) mean the beneficial interest in those rights could not be disposed of for CGT purposes?

It is also important to be clear, as Mr Donnelly, for HMRC pointed out, exactly what the subject matter is whose disposal is in contention. The grant of permission takes as its starting point that there is an asset clearly in the frame for being disposed of or not. That asset is the beneficial ownership in the distribution rights. It is not therefore necessary to address Mr Tenconi’s arguments above that “asset” means “property”, that “property” has the common law meaning of property nor the number of authorities Mr Tenconi took us to as to what counts as property. It is also unnecessary to consider the wider discussion surrounding such issues in the Law Commission report on Digital assets of 27 June 2023 that Mr Tenconi also sought to take us to.

Similarly, Mr Tenconi’s reliance on Hardy v HMRC[2016] UKUT 0332 (TCC) does not advance his appeal. The Upper Tribunal held there that just because something was a valuable right (the property buyer’s contractual right to seek specific performance of the seller’s obligation to convey legal title) it did not necessarily follow that meant the thing was an asset for CGT purposes. The circumstances of the grant of permission mean that it is not open to Mr Tenconi to now contend that the beneficial interest in the distribution rights was not an asset for CGT purposes.

In support of his case regarding the importance of the legal interest being transferred, or being capable of transfer, to the person on the other end of the putative disposal, Mr Tenconi also took us to an excerpt from Nicholls LJ’s judgment in Kirby v Thorn 1987 STC 621 at pg 627 concerning the predecessor provision to s21 (in s22 Finance Act 1965) where Nicholls LJ said:

“I can see no reason to doubt that in sec. 22 ‘property’ bears the meaning of that which is capable of being owned, in the normal, legal sense”.”

Mr Tenconi places particular significance on the fact Nicholls LJ referred to “in the legal sense” as opposed to say the “legal or equitable sense”. We do not agree that the reference to “legal sense” here can be read as precluding beneficial interests from constituting property or as requiring a focus on where the legal interest lies as opposed to the equitable interest. The issue in that case was whether the Revenue were right in their submission that a liberty to trade constituted property. The contrast being drawn was between “that which was capable of being owned, in the normal legal sense” with a “right” in the wide sense of “a person’s “rights” in a free society” and the question of whether a “liberty or freedom to trade enjoyed by everyone” could constitute “property” within s22. Nicholls LJ was simply explaining that a right (in this wider societal sense) was not such property. He was not drawing a contrast between legal and equitable rights.

Returning then to the question of whether there can be a disposal of a beneficial interest in an asset for CGT purposes in circumstances where the legal title to that asset is not transferable, Mr Tenconi highlighted the limitations of contractual assignment as a means of transfer and also took us to various passages in Tolhurst (The Assignment of Contractual Rights 2^nd Edition) in particular he submits that these distinguish “between a beneficiary entitled to an equitable interest corresponding to the full legal interest who may require the trustee to transfer to it the legal interest and one who cannot require the transfer”. He points to an excerpt (at [3.11]) said to confirm that “where…the party taking the interest may not be considered the “owner” of it or may not be able to enforce it in his own name…then no transfer is involved.”

However, those extracted words in 3.11 must be read in full and in the wider context of the preceding passages. The full extract appears in a general legal discussion of assignment and the concept of transfer and the extent to which disposals of interest (generally not with any particular reference to CGT), taking account of the “bundle of rights” theory of ownership, constitute transfers. Earlier passages in the text emphasise that whether there is a transfer cannot be determined by the movement of rights alone but require analysis of the intention that informs that movement.

The full passage from which the words Mr Tenconi relies on above reads as follows:

“Where, however, the transaction is not informed by an intention to transfer such that the interest disposed of does not equate to the interest vested, for example, the party taking the interest may not be considered the “owner” of it or may not be able to enforce it in its own name, and hence its value to that party is less than its value was to the party disposing of it, then no transfer is involved.”

From that it can be seen that the situation of the party taking the interest not being considered an owner is mentioned by way of example of a transaction where no intent to transfer is present. The passage does not suggest a free-standing proposition that a transfer cannot take place without the recipient being able to enforce in their own name still less that there cannot be a disposal in such circumstances. (Earlier in the section it is acknowledged in any case that not all dispositions of right involve transfers and that “…the concepts of “transfer” and “disposition” are capable of wide meaning and their meaning in any particular instance depends on the circumstances”). Even as regards the question of whether there was a transfer, the passage would not apply to the facts of this case. Here there was no mismatch between the interest disposed of and that vested. Mr Tenconi disposed of the beneficial interest. That same beneficial interest was vested in SHL.

There appeared to us, in any case, to be no real dispute between the parties as to the legal limitations surrounding contractual assignment as a means of transfer. HMRC’s analysis, in support of the FTT’s decision, is, in essence, that a disposal of the beneficial interest in the rights was effected not by contractual assignment but by a declaration of trust. The rights in question were the subject matter of a declaration of trust which thereby effected a disposal for CGT purposes. That remained the case even though the rights were not assignable legally because of the lack of transfer provisions in the articles.

In support of the proposition that there can be a transfer of the beneficial interest even if the legal title cannot, HMRC rely on the Court of Appeal’s decision in Don King Productions Inc. v Warren and others [2000] Ch 291. The issue there, which arose in the context of various boxing promotion agreements, was whether a purported assignment of personal contract and the benefit of rights that were prohibited from being assigned could create a trust not just over the receipts in the hands of the assignor but of the rights under the contract. The Court of Appeal endorsed Lightman J’s reasoning in the High Court that no objection could be seen to a party to a contract containing non-assignment provisions from becoming trustee of the benefit of being the contracting party (as well as the benefit of rights conferred).

Mr Tenconi, sensibly, did not in any case appear to take issue with the proposition that contractual rights could be held on trust even if legally the rights were non-assignable. HMRC also referred us to a passage in Underhill and Hayton: Law of Trusts and Trustees (20^th edn. 2022) at paragraph 1.30 explaining that:

“…contractual rights which are not assignable at law, because the contract is for provision of personal services or because of an express contractual restriction, may be the subject matter of a declaration of trust by the person having the benefit of the contract.”

However, in reply, Mr Tenconi argued Don King Productions did not help on whether the rights were capable of disposal. He reiterated his arguments that rights, such as those in point here, that were not property in the first place could not be capable of disposal. That line of argument again however reintroduces an issue which it is not open to Mr Tenconi to appeal given the limited scope of the appeal he has been given permission on.

We agree with HMRC’s analysis. None of Mr Tenconi’s arguments lying within the scope of his appeal give any basis to suggest that the FTT erred in law in concluding there was a disposal for CGT purposes. The relevant asset was the beneficial interest in the rights. That asset was disposed of for CGT purposes through the agreement he entered into. Pursuant to that agreement a trust was declared with the result the beneficial interest was transferred from Mr Tenconi to SHL in exchange for Mr Tenconi receiving £1m. The fact the legal title to the distribution rights could not be transferred because there was no provision in the articles for assignment of the rights did not stand in the way of there being a disposal of the beneficial interest in the rights.