UT (Tax & Chancery) UT/2022/0092 - [2024] UKUT 00373 (TCC)

Ms Shaw submitted that it cannot be said that the purpose of the arrangements is the avoidance of tax in circumstances where the FTT accepted that the intended tax avoidance was not of any immediate, or even inevitable, liability to tax but only in the future, in the (contingent) event of the disposal of units in the Tower.

At the point of entering into the arrangements, the disposal of the Tower at a profit “might have taken several years to be realised” ([45]), at best; at worst, there might never have been any disposal due to some catastrophic event affecting the Tower (the risk of which was acknowledged by the FTT, even if it was only small at [47]), or there may have been a disposal at a loss due to a change in market conditions. The tax effect of the arrangements was, therefore, to increase the base cost of the Tower thereby reducing the amount of profits/gains that might potentially arise on the subsequent disposal of the Tower (or units in the Tower) to a third party. Such increase in base cost was of no use or benefit for as long as the Tower was owned by the group.

In IRC v Parker [1966] AC 141 (“Parker”) the issue was whether a tax advantage arose upon the issue of debentures or only upon the redemption of the debentures some eight years later. Whilst the various speeches differ, in terms of both reasoning and conclusion, each of their Lordships considered that there was no tax advantage until the advantage was achieved (as can be seen from Viscount Dilhorne at p163, Lord Hodson (with whom Lord Morton agreed) at pp166-7, Lord Guest at pp175-6 and Lord Wilberforce at pp178-180).

By analogy with the present case, there is no tax avoidance (or advantage) until tax is avoided (or the advantage is achieved). Accordingly, where the purpose of the arrangements is simply to put the taxpayer in a position to avoid tax in the future, it cannot be said that the purpose of the arrangements themselves is tax avoidance. The highest that it can be put is that a purpose of the arrangements was to enable future tax avoidance upon the happening of some future event that does not form part of the arrangements. This is insufficient to engage paragraph 2(4A).