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Tribunal finds that CGT saving was not the main purpose of wider arrangements

01 November 2023. Published by Keziah Mastin, Associate

In Wilkinson and others v HMRC [2023] UKFTT 00695 (TC), the First-tier Tribunal (FTT) allowed the taxpayers' appeals on the basis that CGT avoidance was not the main or one of the main purposes behind a deal involving a share sale and a securities exchange.


On 18 July 2016, there was an exchange of shares in Paragon Automotive Ltd (P) for loan notes and shares in TF1 Ltd (the exchange). Prior to the exchange, Mr and Mrs Wilkinson (two of the appellants) owned about 58% of the ordinary shares in P. After the exchange, Mr and Mrs Wilkinson received loan notes alongside cash consideration. Their three daughters each received £10 million nil rate deferred payment A loan notes and 500 ordinary B shares. Other former shareholders in P also received loan notes and cash consideration on completion of the exchange. One year and one day following the exchange, each of the daughters redeemed their loan notes for £10million and sold their shares in TF1 Ltd to an affiliated company. They also resigned from their directorships in TF1 Ltd.

In March 2021, HMRC issued discovery assessments to the appellants on the basis that CGT avoidance was the main purpose of the arrangements which had been implemented. HMRC considered that section 135, Taxation of Chargeable Gains Act 1992 (TCGA), did not apply to the exchange and CGT was payable by Mr and Mrs Wilkinson and their daughters. Mr and Mrs Wilkinson and their daughters appealed the discovery assessments to the FTT.

FTT decision

The appeals were allowed.

In allowing the appeals, the FTT focussed on one of the questions posed by section 137, TCGA, namely, did the exchange form part of a scheme or arrangement of which the main purpose, or one of the main purposes, was avoidance of liability to (in this case) CGT? If it did, then section 137 was engaged, preventing the application of section 135 to the exchange, and the appeals would fall to be dismissed. If it did not, then section 137 would not be engaged (HMRC did not argue that the exchange was effected other than for bona fide commercial purposes) and the appeals would fall to be allowed.

The FTT considered the wider context of the exchange, including the negotiations and concluded that a share sale constituting an exchange of target shares for loan notes in the buyer was the scheme or arrangement for the purposes of section 137 (rather than just the CGT planning) but did not have CGT avoidance as a main purpose. It followed that the sellers' roll-over relief claims under section 135 were not affected by the anti-avoidance provisions in section 137. Accordingly, the daughters' claims for entrepreneurs' relief (now business asset disposal relief) on the gain on their disposal of the loan notes were valid.

In allowing the appeals, the FTT noted, in particular, that:

the main purpose of the deal was for the shareholders in P to sell their shares to TF1 for a value of £130 million;
most of those selling their shares in P were not affected by the CGT planning aspect of the arrangements;
the value of the CGT tax planning was only about 4% of the total proceeds of the sale;
the arrangements, which put the CGT planning into effect, were not included as contractually required for the exchange;
contemporaneous emails between Mr Wilkinson, his tax advisor and another shareholder, showed that Mr Wilkinson was not prepared to jeopardise the deal even if the CGT planning could not be achieved (Mr Wilkinson had played the lead role in negotiations).


This decision demonstrates the highly fact-dependant questions to be considered in determining whether the anti-avoidance provisions in relation to rollover relief apply. The decision also highlights the importance of identifying the scheme or arrangement to which the purpose test is to be applied. In this instance, a relatively small tax saving built into the wider arrangements did not amount to a main purpose of the whole deal.  

The decision can be viewed here.