Avoidance scheme effective despite HMRC's attempt to rely on Ramsay

In Gemsupa Limited and Consolidated Property Wilmslow Limited v HMRC [2015] UKFTT 0097 (TC) ...

… the First-tier Tribunal (Tax Chamber) ("FTT") found that an avoidance scheme designed to avoid corporation tax on chargeable gains on the disposal of properties through the use of share sales and options to create and then disband a group was effective.

Background

As readers will be aware, a sale of a property by a company to a third party is, generally, subject to corporation tax on chargeable gains. However, if a property is transferred between members of a group, the sale is treated as being for neither a gain nor a loss for the purposes of corporation tax on chargeable gains.

Gemsupa Limited ("Gemsupa") and Consolidated Property Wilmslow Limited ("Wimslow") (collectively “the Appellants”) were part of the Consolidated Property Group (“CPG”) and owned freehold and leasehold investment properties (“the Properties”). In 2006 the Appellants negotiated and completed a sale of the Properties to British Land for £126.2 million.

The sale of the Properties involved all the parties implementing a tax avoidance scheme which was intended to avoid corporation tax on any chargeable gains on the disposal of the Properties.  In broad terms, arrangements were put in place whereby the disposal of the Properties took place whilst the Appellants were members of the British Land group of companies and therefore at a no gain/no loss consideration for capital gains purposes. The purchaser of the Properties was a company called Cleartest Limited ("Cleartest"), which was a member of the British Land group.

In their corporation tax returns for the periods ending 30 June 2007 the Appellants declared that no corporation tax was payable in relation to the disposal of the Properties. The scheme was disclosed to HMRC under the Disclosure of Tax Avoidance Schemes provisions.

On 4 March 2009, HMRC opened enquiries into the Appellants' corporation tax returns and these enquiries resulted in closure notices which amended the returns to show corporation tax on chargeable gains of £18.5 million for Gemsupa and £10.1 million for Wimslow.

The Appellants appealed the closure notices and their appeals came before the FTT for determination.

FTT's decision

The questions for determination by the FTT were:

1.   whether, for the purposes of corporation tax on chargeable gains, on a proper construction of the intra group asset transfer provisions contained in section 171, Taxation of Chargeable Gains Act 1992 ("TCGA"), the disposal of the Properties was a transaction to which section 171 applied; and

2.   whether, on a proper construction of the interpretation provisions contained in section 170 TCGA, the Appellants and Cleartest were members of the same group at the time of disposal of the Properties.

HMRC's submissions focused on a purposive construction of the chargeable gains group relief provisions and relied upon the Ramsay line of cases WT Ramsay v IRC (1982) 54 TC 101.

It argued that the purpose of the relief provisions was to recognise "real" groups and the existence of the options (which were part of the planning arrangements and which were going to be exercised) meant that the group relationship was temporary. HMRC submitted the arrangement was therefore outside the scope of sections 170 and 171.

The FTT was of the view that, following the case of Barclays Mercantile Business Finance v Mawson [2004] UKHL 51, it had to adopt a two-stage test. Firstly, it had to decide, on a purposive construction, what transaction would answer to the statutory description and, secondly, it had to decide whether the transaction in question did so.

The FTT recognised “that the sole reason for entering into the corporate transactions … was for tax avoidance” purposes. Further, CPG had made clear that without the benefit of group relief, it would not dispose of the Properties.

However, in applying BUPA Insurance Limited v Revenue & Customs Commissioners [2014] UKUT 0262 (TCC) and J Sainsbury plc v O'Connor [1991] STC 318, the FTT concluded that notwithstanding the limited lifespan of the group structure, which had been created for the purposes of tax avoidance, the arrangements were within the scope of the group relief provisions and the appeals were therefore allowed.

Comment

HMRC often invokes Ramsay in the context of tax planning arrangements, but this case is a timely reminder of the limits of the Ramsay principle. The Ramsay line of cases is a judge made aid to the interpretation of fiscal legislation. If the statutory provisions under consideration are detailed and clear, there may be little scope for HMRC successfully to argue that a scheme which is within the provisions is ineffective simply due to a tax avoidance motive.

Given that HMRC will no doubt consider this decision unsatisfactory, it is likely that it will appeal to the Upper Tribunal.