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

We set out below the relevant statutory provisions as they stood at the time of the Buybacks.

There are two statutory provisions from the TIS code which are particularly relevant to this appeal. The first is section 684 ITA 2007 which provided:

“(1)

This section applies to a person where—

(a)

the person is a party to a transaction in securities or two or more

transactions in securities (see subsection (2)),

(b)

the circumstances are covered by section 685 and not excluded by

section 686,

(c)

the main purpose, or one of the main purposes, of the person in being a

party to the transaction in securities, or any of the transactions in securities,

is to obtain an income tax advantage, and

(d)

the person obtains an income tax advantage in consequence of the

transaction or the combined effect of the transactions.

…

(3)

Section 687 defines “income tax advantage”.

…”

The Taxpayers are not, as we understood it, contesting that section 684(1)(a), (b), and (d) ITA 2007 were satisfied. They dispute that there was a main purpose of obtaining an income tax advantage.

The second relevant statutory provision from the TIS code is section 687 ITA 2007, which defined whether a person obtains an “income tax advantage” and provided:

“(1)

For the purposes of this Chapter the person obtains an income tax advantage if—

(a)

the amount of any income tax which would be payable by the person in

respect of the relevant consideration if it constituted a qualifying distribution exceeds the amount of any capital gains tax payable in respect of it, or

(b)

income tax would be payable by the person in respect of the relevant consideration if it constituted a qualifying distribution and no capital gains tax is payable in respect of it.

(2)

So much of the relevant consideration as exceeds the maximum amount that could in any circumstances have been paid to the person by way of a qualifying distribution at the time when the relevant consideration is received is to be left out of account for the purposes of subsection (1).

(3)

The amount of the income tax advantage is the amount of the excess or (if no capital gains tax is payable) the amount of the income tax which would be payable.

…”

There are two further statutory provisions that we should mention. At the time of the Buybacks, section 685 ITA 2007 provided:

“(1)

The circumstances covered by this section are circumstances where condition A or condition B is met.

(2)

Condition A is that, as a result of the transaction in securities or any one or more of the transactions in securities, the person receives relevant consideration in connection with—

(a)

the distribution, transfer or realisation of assets of a close company,

(b)

the application of assets of a close company in discharge of liabilities, or

(c)

the direct or indirect transfer of assets of one close company to another close company,

and does not pay or bear income tax on the consideration (apart from this Chapter).

(3)

Condition B is that—

(a)

the person receives relevant consideration in connection with the transaction in securities or any one or more of the transactions in securities,

(b)

two or more close companies are concerned in the transaction or transactions in securities concerned, and

(c)

the person does not pay or bear income tax on the consideration (apart from this Chapter).

(4)

In a case within subsection (2)(a) or (b) “relevant consideration” means consideration which—

(a)

is or represents the value of—

(i)

assets which are available for distribution by way of dividend by the company, or

(ii)

assets which would have been so available apart from anything done by the company,

(b)

is received in respect of future receipts of the company, or

(c)

is or represents the value of trading stock of the company.

(5)

In a case within subsection (2)(c) or (3) “relevant consideration” means

consideration which consists of any share capital or any security issued by a close company and which is or represents the value of assets which—

(a)

are available for distribution by way of dividend by the company,

(b)

would have been so available apart from anything done by the company,or

(c)

are trading stock of the company.

…”

Section 686 ITA 2007 provided:

“(1)

Circumstances are excluded by this section if—

(a)

immediately before the transaction in securities (or the first of the

transactions in securities) the person (referred to in this section as “the party”) holds shares or an interest in shares in the close company, and

(b)

there is a fundamental change of ownership of the close company.

(2)

There is a fundamental change of ownership of the close company if—

(a)

as a result of the transaction or transactions in securities, conditions A, B

and C are met, and

(b)

those conditions continue to be met for a period of 2 years.

(3)

Condition A is that at least 75% of the ordinary share capital of the close company is held beneficially by—

(a)

a person who is not connected with the party and has not been so connected within the period of 2 years ending with the day on which the transaction in securities (or the first of the transactions in securities) takes place, or

(b)

persons none of whom is so connected or has been so connected within that period.

(4)

Condition B is that shares in the close company held by that person or those persons carry an entitlement to at least 75% of the distributions which may be made by the company.

(5)

Condition C is that shares so held carry at least 75% of the total voting rights in the close company.”