UT-2023-000116 - [2025] UKUT 00183 (TCC)

This appeal raises a short but important point on the construction of sections 684 and 687 Income Tax Act 2007 (“ITA 2007”) which form part of the transactions in securities (“TIS”) regime. Essentially, the issue is whether the fact that the Appellants (“the Taxpayers”) had a main purpose of obtaining the benefit of Enterprise Investment Scheme (“EIS”) disposal relief – a capital gains tax (“CGT”) relief – on a buyback of their shares meant that their main purpose (or a main purpose) was necessarily to obtain “an income tax advantage” within the meaning of section 687 ITA 2007 even given a factual finding that that was not their subjective intention. The EIS relief reduced the Appellants’ CGT liability in respect of the share buyback to nil.

The First-tier Tribunal (“FTT”), in a decision released on 8 May 2024 (“the Decision”), held that the Appellants’ main purpose of obtaining EIS relief necessarily (and without regard to the absence of a subjective intention to do so) meant that they had a main purpose of obtaining an income tax advantage. The Taxpayers were, therefore, liable to a counteraction notice, issued by the Respondents (“HMRC”) in respect of that advantage under section 684 ITA 2007.

With the permission of the FTT granted on 11 July 2024, the Taxpayers now appeal to this Tribunal and, for the reasons given below, we allow their appeal.