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

There were a number of underlying transactions which formed the background to the enquiries. These were summarised by the FTT at [20]-[26] as follows:

“20.

RHG was founded by the Applicants' father - Robert Hitchins. The company was incorporated in December 1960 and the two subscriber shares were transferred, and a further 98 shares allotted, to Robert and his wife Ada in 1962. They were resident in the UK at the time. In 1974 they emigrated to Guernsey, where they remained resident and domiciled until their deaths in 2001 and 1997 respectively.

21.

It appears that RHG was a very successful company. By way of example between March 1999 and March 2005 the company's P&L reserves grew from £46m to £84m, and its net assets increased from £49m to £86m.

22.

By 1984, RHG's issued share capital was divided into 100 ordinary shares and 100 deferred shares. Through a series of transactions, all the ordinary shares and 99 deferred shares became owned by Bay Investments Limited ("BIL") (a company incorporated and resident in Bermuda) and the other deferred share was owned by Investments Bermuda Limited ("IBL") (a company incorporated and resident in Bermuda). The shares in IBL and BIL were owned by Robert.

23.

In 1999, Robert settled the shares in BIL and IBL into a discretionary trust managed and resident in Guernsey, The Hitchins Family Settlement ("the Settlement"). HMRC have not been provided with details of the Settlement's beneficiaries or the nature of their interests, but Officer Rolls believes that the Applicants are all beneficiaries. In addition to the Settlement, the Hitchins Declaration of Trust ("the Trust") was established outside the UK following a reorganisation of the Settlement.

24.

The Applicants are (or in the case of Stephen, were) directors of RHG, but have never been shareholders of RHG.

25.

The accounts of RHG for the year ended 31 March 2004 show that it paid a dividend of £40,000,000. HMRC's enquires are mainly focussed on whether this dividend (and its onward transmission) could give rise to a charge under the ToAA legislation.

26.

In the course of an appeal against one of the many Schedule 36 notices, Mr Cassidy (Footnote: ¹)stated in his witness statement that the £40m dividend declared by RHG was not paid to Bay Group Limited ("BGL") (a company incorporated and resident in Bermuda). However, he did not state to whom the dividend was paid.”

The FTT at [27]-[33] discussed a difference in view between the parties which related to RHG’s form 363a Annual Return dated 14 February 2004. The FTT concluded at [32]-[33] that Mr Rolls, the HMRC officer handling the enquiry, had misinterpreted the information contained in form 363a Annual Return and preferred the Respondents’ view of the transactions which was summarised as follows at [31]:

“… [Bay Almanzora Limited (“BAL”)] (previously called Bay Holdings Limited) owned 999,899 ordinary shares and 100 deferred shares in RHG, and IBL owned 1 ordinary share in RHG. The following events then took place:

(a)

On 28 March 2003, BAL transferred its entire shareholding in RHG to [(New] Bay Holdings Limited (“NBH”)] (the newly incorporated company with the name Bay Holdings Limited). The shares in NBH were owned by the Settlement.

(b)

On 20 August 2023, NBH transferred its entire shareholding in RHG to its wholly owned subsidiary Relkeel.

(c)

On 25 August 2003, IBL transferred its entire shareholding in RHG to [Relkeel Limited (“Relkeel”)]. At this point Relkeel was the sole shareholder in RHG.

(d)

On 28 August 2003 RHG paid a £40m dividend to its sole shareholder Relkeel.

(e)

Relkeel was then liquidated and the £40m distributed in the liquidation to its shareholder NBH

(f)

On 21 October 2003, Relkeel transferred its entire shareholding in RHG to NBH - and although I have no express evidence on the point, this would be consistent with the RHG shares being distributed in specie in Relkeel's liquidation to NBH.

(g)

On 6 October 2003, BGL was incorporated and on 4 November 2003 NBH transferred its entire shareholding in RHG to BGL.

(h)

NBH was then liquidated and the £40m distributed in its liquidation to the trustees of the Settlement.

(i)

At some later stage, the shares in BAL were transferred to the Trust.”

The FTT concluded at [34]:

“34.

The evidence before me is that the £40m distribution received by the Settlement was appointed to a beneficiary or beneficiaries (not named) before 2005. The Applicants state that none of them were recipients of the amount distributed. This is supported by letters from the trustees of the Settlement confirming that no distributions or benefits were paid to the Applicants or their families in the relevant tax years. The Applicants refuse to give details of the recipient(s) on the grounds that this information is not relevant to enquiries into the Applicants' tax liabilities.”

BAL, BHL and MBH were all incorporated and resident in Bermuda. Relkeel was incorporated and resident in the UK.

The FTT referred to certain transactions concerning companies called Foxseal Limited (UK) and Saint Ledger Ltd (Bermuda) and to certain companies owning properties in Spain, but HMRC accepted that it could not justify keeping the enquiries open by reference to these companies and transactions.

HMRC had previously issued six information notices under schedule 36 Finance Act 2008 to Stephen, each of which had been withdrawn or successfully appealed. Two of those notices were withdrawn on the basis that they had not been correctly authorised and were then replaced. Two of the notices were withdrawn when HMRC’s case officer, Mr Rolls, considered the requests in them could be more closely targeted. Furthermore, two of the information notices were withdrawn after Mr John Cassidy of Crowe LLP, the Respondents’ accountants, filed a witness statement in the appeal against them.

At [43] the FTT noted that HMRC were not seeking to apply the legislation in order to tax the £40 million distribution in the year it was made but rather were seeking to establish whether any relevant transfers were made or procured by any of the Respondents that led to the receipt and/or further use of that sum so that the requirements were met that there be a relevant transfer for the purposes of section 732(1)(a) ITA.