UT-2023-000051 - [2024] UKUT 00114 (TCC)

Further, the FTT had stated that it accepted HMRC’s interpretation of the legislation was arguable for the purposes of determining the applications. However, it accepted the Respondents’ argument that no liability arose for any of them under the ToAA legislation because the distribution from RHG had been made to Relkeel (at [53]). The argument that no liability arose if the distribution had been made to Relkeel appears to have then influenced the conclusion at [61] that HMRC had sufficient information to close the enquiries. This is the only basis on which it could hold that the closure notices would not be vague and uninformative and would satisfy the requirement in Archer v HMRC [2018] STC 38 that a closure notice should state the amount of tax due (but it could be an estimate).

The FTT failed to appreciate that under the ToAA legislation, the only consequence of the dividend being paid to Relkeel, which was UK resident, as opposed to a person abroad was that no income has become payable to a person abroad for the purposes of the charges under section 731 ITA in relation to the set of transactions referred to at paragraph 16 above. Based on those facts, the position was that the dividend was received in the form of income by a UK resident entity, Relkeel, before being converted into capital proceeds upon Relkeel’s liquidation so that it was received in the form of capital by the Settlement. However, HMRC’s position had always been that they are not seeking to tax the distribution in the year it was made and there was, in any event, no enquiry open in that year.

In accepting the Respondents’ argument that no liability arose, the FTT made a further error because it failed to acknowledge that even if the dividend had been paid to Relkeel a charge could still arise under the ToAA legislation for the years under enquiry because there would still be income arising to a person abroad such as the Trust or any other entity linked to the accumulation or investment of that £40m by means of associated operations which were defined broadly under section 719 ITA as including an operation effected in relation to the “asset transferred or an asset representing the asset transferred”.