Upper Tribunal Tax and Chancery Chamber

UT (Tax & Chancery) UT-2023-000031 - [2024] UKUT 00168 (TCC)

Fecha: 13-Mar-2024

Ground 3 - the FTT erred in concluding that “the amount payable on the transfer” as found in paragraph 14A(3) Schedule 13 FA 1996 was a commercial concept ([166] and [171]), with “transfer” to be give

Ground 3 - the FTT erred in concluding that “the amount payable on the transfer” as found in paragraph 14A(3) Schedule 13 FA 1996 was a commercial concept ([166] and [171]), with “transfer” to be given a wide practical meaning ([167](1))

The FTT Decision

18.

The FTT decided at [166] and [167] that ‘the amount payable on the transfer’ for the purposes of paragraph 14A(3)(b) was to be interpreted as a commercial concept and ‘transfer’ was to be given a wide practical meaning such that it included both the payments made by Investec to the Trustee to acquire and exercise the option to purchase the gilt strips:

‘166. The relevant question in this appeal is, in my view, not so much whether the meaning of ‘loss’ in sub-para 14A(1) is a commercial or a legal concept, but whether ‘the amount payableon the transfer’ for para 14A(3) purposes is a commercial concept. I conclude that ‘the amount payable on the transfer’ is a commercial concept for the following reasons:

(1)

The statutory wording directs the focus of construction on ‘payable’ (as distinct from ‘receivable’).

(2)

In a case of actual disposal, ‘the amount payable on the transfer’ is referable to the amount payable by the transferee to acquire the gilt strips, (not the amount receivable by the transferor on the disposal of the gilt strips).

(3)

This is consistent with the concept of using market value as ‘the amount payable on the transfer’ in a case of deemed transfer (such as for accounting the annual profit orloss on gilt strips, or the transfers between connected parties).

(4)

The amount payable on transfer is a commercial concept by reference to market value or a bona fide amount payable by a third-party purchaser.

(5)

A commercial concept for ‘the amount payable on the transfer’ is essential to preserving tax symmetry, since the amount payable by the transferee to acquire the gilt strips would be the acquisition cost for the transferee, either for calculating its deemed disposal charge on the 5th April in the year of acquisition, or indeed on redemption or eventual disposal, if it were to take place in the same tax year as the acquisition.

167.

I reject therefore the submission put forward for the appellant, that ‘the amount payable on the transfer’ was only the £150,400 paid by Investec to Mr Watts, and did not include theamount paid to the Trust of £1,347,049 by Investec. The facts, which fall to be viewed realistically in accordance with case law principles to determine this appeal are as follows:

(1)

The statutory wording requires me to give the term ‘transfer’ a wide practical meaning as directed in SPI, where the short question is whether the Citibank option gave it an entitlement to gilts, and Lord Nicholls observed at [19]:

‘… the language of a taxing statute will often have to be given a wide practical meaning of this sort which allows (and indeed requires) the court to have regard to the whole of a series of transactions which were intended to have a commercial unity. … If the scheme amounted in practice to a single transaction, the court should look at the scheme as a whole. …’

(2)

By giving the term ‘transfer’ in the statutory wording of ‘the amount payable on the transfer’ a wide practical meaning: the grant of the Option to the Trust, and thesubsequent assignment of the Option by the Trust to Investec are to be viewed as a seriesof transactions intended to operate as a commercial unity.

(3)

In terms of the legal instruments required to effect the ‘transfer’, as Mr Davey submits, the ‘transfer’ of the Gilt Strips required both of the events to have occurred: assignment of the Option to Investec and the exercise of the Option by Investec. It follows therefore that the consideration paid at each event, namely the payment of £1,347,049 by Investec to the Trustee on the assignment of the Option was an essential part of ‘theamount payable on the transfer’ for the purposes of para 14A(3)(b).

(4)

In terms of tax symmetry, the acquisition cost of the Gilt Strips for Investec should equate to ‘the amount payable on the transfer’ for para 14A(3)(b) purposes. Whether it is for accounting or tax purposes, it is inconceivable that Investec would have only used £150,400 as its acquisition cost (as argued for the appellant). For Investec, the acquisition cost for the Gilt Strips must have been the sum of the two parts: £1,347,049 to the Trustee, and £150,400 to Mr Watts. Tax symmetry therefore demands ‘the amount payable on thetransfer’ to encompass £1,347,049, which was over 91% of the total consideration paid by Investec for Gilt Strips, and not just referable to £150,400.

(5)

In terms of the appellant’s ‘family silver’, Mr Watts considered that he was out of pocket to the tune of £100,000, not in the sum of £1,347,049, because the consideration paid on the assignment of the Option, being money into the trust was, as confirmed to Mr Watts: ‘yours by right’. The Trust borrowed from Hambros on the grant of the Option to repay 90% of Mr Watts’ loan from Hambros, and Investec paid the Trust the £1,347,049 on assignment of the Option to enable the Trust’s loan with Hambros to be repaid. It was all designed to come out in the wash, and Mr Watts quite correctly understood the family silver he had put on the line amounted to £100,000 (for entering the Scheme) and not £1,347,049, which falls to be viewed as more than 90% of ‘the amount payable on the transfer’ of the Gilt Strips to Investec.’

The Appellant’s argument

19.

Ms Nathan KC, for the Appellant, submitted that the FTT erred in concluding that “the amount payable on the transfer” as found in paragraph 14A(3), Schedule 13, FA 1996 was a commercial concept ([166] and [171]), with “transfer” to be given a wide practical meaning (FTT [167(1)).

20.

She argued that the FTT should have followed the approach of the Special Commissioners in Campbell, paying close attention to the statutory language being applied, as well as the overall statutory scheme and its purpose.

21.

In Campbell, the Special Commissioners considered paragraph 2, Schedule 13, FA 1996 in the form that it stood at the time, which then provided for loss relief on relevant discounted securities and defined the term “sustains a loss from the discount on a relevant discounted security” in terms which were materially the same as those in paragraph 14A. Despite noting that one step in the series of transactions entered into by the taxpayer was “wholly tax motivated” and “purely to generate the loss for which the Appellant seeks relief and for no other reason”(at [67]), the Special Commissioners concluded that the taxpayer had suffered a loss as defined by paragraph 2.

22.

The Commissioners stated at [81] and [85]:

‘81. Certainly we can see no conflict between the notion that certain terms may, either expressly, or as a matter of statutory context, have a meaning which is unaffected by the purpose of a taxpayer, whether tax avoidance or otherwise, and the notion that certain other statutory phrases, even those with a settled meaning in certain areas of law (and certain statutes), may, in the context of the application of tax statutes, be given a different meaning in their application to transactions effected purely for tax avoidance purposes. This is no more than a recognition that different statutes are enacted for different purposes and on the basis of different assumptions of the type of transaction and circumstances which the respective draftsmen wish to encompass in their language, and that the assumptions of one statute, which apply to one area of law, do not necessarily hold good in applying another statute in a different area of law:
“…although a word may have a ‘recognised legal meaning’, the legislative context may show that it is in fact being used to refer to a broader commercial concept.” (Lord Hoffmann in Westmoreland, supra, at paragraph 50).
…
85.
We acknowledge, however, as we must, that the commercial/legal dichotomy has given rise to problems. Lord Millett said that:
“The supposed dichotomy between legal and commercial concepts has caused great difficulty. In Barclays Mercantile neither Peter Gibson LJ nor Carnwath LJ could understand it, and counsel were unable to explain it.” (Arrowtown, para 148).
However we consider that such problems arise due to an attempt to elevate that dichotomy to an exhaustive principle which treats all terms as having either an intrinsic “commercial” or “legal” meaning independent of their statutory context rather accepting that the dichotomy is a useful but particular gloss on the concept of the Ramsay doctrine as one of statutory construction.’

23.

Ms Nathan KC contended that in reaching the conclusion that the term “the amount payable on the transfer” was a commercial concept, the FTT failed to analyse the statute, the overall scheme of Schedule 13 or the statutory purpose. Rather the FTT referred to a number of factors which had no basis in the statute at [166]. Indeed, in reaching the conclusion that the term “the amount payable on the transfer” should be regarded as a commercial concept, the FTT did not go on to explain what that commercial meaning might be, save that it must be one which denied the Appellant his claimed loss.

24.

Ms Nathan KC also criticised the reasoning of the FTT that “The statutory wording requires me to give the term ‘transfer’a wide practical meaning” (FTT [167(1)]). She noted that the FTT quoted the following passage from the speech of Lord Nicholls IRC v Scottish Provident Institution [2004] UKHL 52, [2004] 1 WLR 3172, at [19] (FTT [167(1)]) in support of this conclusion:

“… the language of a taxing statute will often have to be given a wide practical meaning of this sort which allows (and indeed requires) the court to have regard to the whole of a series of transactions which were intended to have a commercial unity. … If the scheme amounted in practice to a single transaction, the court should look at the scheme as a whole.…”

25.

Ms Nathan KC submitted, however, that the FTT notably failed to articulate what aspect of the statutory wording required this. Furthermore, the FTT failed to note that the language (i.e. “will often”) used by Lord Nicholls recognised that he was not laying down a general prescription that the language of taxing statutes must be given a wide practical meaning; the interpretation to be adopted is context specific.

26.

Ms Nathan KC submitted that, as recognised in Campbell, the proper interpretation requires grappling with closely articulated statutory provisions. The relevant question is then whether the premium paid by Investec to the Trustee for the grant of the Option was an “amount payable on the transfer...” On the facts, this cannot be the case:

The Option was granted by the Appellant to the Trustee on 19 November 2003.

The premium for the grant of the Option was paid by the Trustee to the Appellant’s account on 21 November 2003.

It was not until 25 November 2003 that the Trustee executed the deed which assigned to Investec, inter alia, the benefit of the Option.

On the same date, Investec gave the Appellant notice of its exercise of the Option.

Investec then paid the Appellant the exercise price for the Option on 27 November 2003.

27.

Ms Nathan KC relied on paragraph 4(1), Schedule 13, FA 1996 which states that references to a “transfer” are a reference to “any transfer of the security by way of sale, exchange, gift or otherwise.”:

Clause 4.3 of the Option obliged the Appellant to sell the gilt strips to the Trustee. See also clause 6.2(a) to like effect.

Clause 10.1 of the Option contained a power for either party to assign the benefit of the Option.

By an acknowledgment of a notice of assignment, the Appellant acknowledged that the benefit of the Option had been assigned from the Trustee to Hambros. This notice obliged the Appellant, upon the exercise of the Option and payment of the exercise price, to transfer the gilt strips to Hambros.

The transfer of the gilt strips to Investec “by way of sale, exchange, gift or otherwise” was only capable of occurring following the execution of the deed which assigned the benefit of the Option from the Trustee to Investec. That deed which came into existence on the 25 November 2003, several days after the premium for the grant of the Option had been paid.

Accordingly, the payment of the premium on 21 November could not have been “an amount payable on a transfer” of the gilt strips to Investec on 25 November, which had then not yet occurred and which, when the sum was paid, could not have effected the transfer of the gilt strips to Investec.

28.

Ms Nathan KC contended that the only amount payable on the transfer was the amount paid by Investec to the Appellant on the exercise of the Option of £150,400: the amount paid by Investec to the Trustee on the grant of the Option (around £1.35 million) cannot be part of the amount payable on the transfer of the gilt strips because at the time of the grant of the Option, the Appellant had not acquired the gilt strips.

29.

She submitted that had the FTT focused its analysis on the statutory definition of “transfer” in paragraph 4 of Schedule 13 comprising three specific transactions followed by “or otherwise” it would have concluded that the common feature of the three specified terms – namely sale, exchange, gift – was that they were all means by which an interest in property is transferred. This recognition would have led the FTT to conclude that the term “or otherwise” should be construed ejusdem generis with the specific terms that preceded it.

30.

Ms Nathan KC argued that the FTT, should have concluded that the grant of an option was not a “transfer” for the purposes of paragraph 14A, Schedule 13, FA 1996 as the grant of an option does not transfer an interest in the property which is the subject of the option: George Wimpey & Co Ltd v IRC [1975] 1 WLR 995 (‘Wimpey’).

31.

She contended that the FTT failed to conduct the interpretative exercise set out above and its decision on this aspect represents a failure to engage with the statutory language of “any transfer of the security by way of sale, exchange, gift or otherwise” and amounts to an error of law.

32.

As a result, the language of paragraph 4, Schedule 13, FA 1996 did not permit the premium paid for the Option (of around £1.35m) to be accounted for as an amount payable on the transfer.