© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
B4. Examples of realistic views
Identity of transferor/source
- Distribution by a company designed to reach shareholders as a result of a series of steps is in respect of their shares
"[31] It follows that the answer to the first stage of the enquiry is that "distribution … in respect of shares" is, on a purposive construction of the statute, wide enough to include a distribution by a company which is designed to reach, and does reach, the company's shareholders even if it does so as a result of a series of steps. That is the "class of facts intended to be affected by the charge". The second stage of the enquiry is to discover whether the relevant facts fall within that class, in the sense that they "answer to the statutory description". That is straightforward enough. The distribution by Winn Yorkshire, was, as to some 98.5% of the sum distributed, designed to reach, and did reach, the Appellants (its shareholders). It therefore answers the statutory description." (Clipperton v. HMRC [2024] EWCA Civ 180, Nugee, Lewison, Newey, LJJJ)
- Sale of shares to holding company followed by sale by holding company: onward sale very likely - disposal by original holder
"[35]...In Furniss, the transfer of shares to a subsidiary as part of a planned scheme immediately to transfer them to an outside purchaser was regarded as a taxable disposition to the outside purchaser rather than an exempt transfer to a group company...In each case the court looked at the overall effect of the composite transactions by which the taxpayer company in Burmah suffered no loss, the shares in Furniss passed into the hands of the outside purchaser and the vendors in Carreras received cash. On the true construction of the relevant provisions of the statute, the elements inserted into the transactions without any commercial purpose were treated as having no significance." (Barclays Mercantile Business Finance Ltd v. Mawson [2004] UKHL 51)
"For example, in the instant case tax will, on the Ramsay principle, fall to be assessed on the basis that there was a tripartite contract between the Dawsons, Greenjacket and Wood Bastow under which the Dawsons contracted to transfer their shares in the operating companies to Greenjacket in return for an allotment of shares in Greenjacket, and under which Greenjacket simultaneously contracted to transfer the same shares to Wood Bastow for a sum in cash. Under such a tripartite contract the Dawsons would clearly have disposed of the shares in the operating companies in favour of Wood Bastow in consideration of a sum of money paid by Wood Bastow with the concurrence of the Dawsons to Greenjacket. Tax would be assessed, and the base value of the Greenjacket shares calculated, accordingly. Ramsay says that this fiscal result cannot be avoided because the preordained series of steps are to be found in an informal arrangement instead of in a binding contract. The day is not saved for the taxpayer because the arrangement is unsigned or contains the words "this is not a binding contract."
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The result of correctly applying the Ramsay principle to the facts of this case is that there was a disposal by the Dawsons in favour of Wood Bastow in consideration of a sum of money paid with the concurrence of the Dawsons to Greenjacket. Capital gains tax is payable accordingly. I would therefore allow the appeals. I agree that there should be no order for costs in your Lordships' House." (Furniss v. Dawson [1984] AC 474 at 526 - 528, Lord Brightman)
"[53] Nor, in my view, can there be a strict requirement for "arrangements" for the final sale to have been made by the time of the first transaction. Doubtless, it will often be impossible to discern "a pre-ordained series of transactions" or "one single composite transaction" in the absence of such arrangements. I do not see, however, why that need be so if the asset in question (unlike the shareholding with which the House of Lords was concerned in Craven v White) can be disposed of quickly without advance preparation. Take a case such as the present one, where what is at issue is quoted shares and by the date of the first relevant transaction "there was no practical likelihood that the … shares would not forthwith be re-sold in the market" (to quote from paragraph 111 of the FTT decision). Viewing the facts realistically, it may very well be possible to say that there was "a pre-ordained series of transactions" and "one single composite transaction", and accordingly a "disposal" for the purposes of the TCGA, regardless of whether any arrangements for the intended sale had been made when the first transaction was entered into. The Ramsay approach is intended to be liberating, not to spawn technical rules of its own.
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[59] In short, it seems to me that the FTT was right to conclude that the Ramsay approach was in point and that the Scottish Trustees should be regarded as having effected a "disposal" of the AWG shares to Merrill Lynch within the meaning of the TCGA." (Trustees of the Morrison 2002 Maintenance Trust v. HMRC [2019] EWCA Civ 93, Newey, McCombe, David Richards LJJ)
- Sale of shares to holding company followed by sale by holding company: no certainty re onward sale - disposal by holding company
"In Furniss v. Dawson the Dawsons had arrived at a complete informal agreement with Wood Bastow, and the transactions designed to give effect to that informal agreement were all settled in a very short space of time in the course of one morning. It was in that context that Lord Brightman found that what had happened was equivalent to a tripartite contract. Is it enough that the original owners of the shares, being minded to dispose of them, decide to do so through an intermediary company under their control, carry through a share exchange and thereafter seek and successfully find a purchaser? In that situation there is certainly a scheme on the part of the holders of the shares to dispose of them in such a way that any capital gains tax liability is deferred. According to circumstances, there may be varying degrees of interconnection between the disposal to the intermediary company and the disposal to the ultimate purchaser. It may be many months before a possible purchaser is found and many more before a bargain is concluded. Again, the share exchange may be entered into without any immediate intention of selling but so that it may stand in good stead for tax purposes if and when a decision to sell is made. Or it may take place when negotiations with a particular purchaser are under way but the outcome is still open. In all these cases it is clear that the owner of the shares has so arranged matters that if and when a sale of the shares does take place it will not be a direct disposal of the shares by him but a disposal by an intermediary company which he controls. But I do not think that the transaction embodied in the final disposal can be said to be pre-ordained, a matter to be ascertained as at the time of the share exchange, when at that time it is wholly uncertain whether that disposal will take place, or a fortiori when neither the identity of the purchaser nor the price to be paid nor any of the other terms of the contract are known. In my opinion both the transactions in the series can properly be regarded as pre-ordained if, but only if, at the time when the first of them is entered into the taxpayer is in a position for all practical purposes to secure that the second also is entered into." (Craven v. White [1989] AC 398 at 480, per Lord Keith)
- Onward sale collapses: intermediary not disregarded
"IRC v Bowater Property Developments Ltd: This appeal concerns the charge to development land tax on realised development value accruing to the taxpayer company on the disposal by them of an interest in land. The relevant transactions concerned a number of companies in the Bowater group and an outside company, MPL, and the facts are set out in the judgment of Slade LJ ([1987] STC 297 at 316-317). In summary the following events occurred: (1) By November 1978, agreement had been reached subject to contract for the sale by Bowaters United Kingdom Paper Co Ltd (BUKP) of land to the outside company of MPL. (2) On 7 March 1979, the taxpayer company exercised an option to purchase the land from BUKP. (3) On 25 March 1980, the taxpayer company sold the land to five other companies in the Bowater group in equal shares. None of these five companies had used any part of its annual exemption of £50,000 and the sole purpose of the sale was to avoid development land tax on any sale of land to MPL. On that date there was a firm expectation that the sale to MPL would take place but no possibility that MPL would then have signed the contract. (4) On 7 July 1980, MPL intimated that they were giving up the proposal to purchase the land. (5) In February 1981, MPL's circumstances altered and they reopened negotiations. (6) On 25 November 1981, sales of the land by the five companies to MPL were completed.
In this case not only could it not have been said on 25 March 1980 that there was no reasonable likelihood that the sale to MPL would not take place but thereafter there was a complete and genuine interruption of all dealings for a period of seven months followed by further negotiations for nine months before the sale took place. I do not consider that it could possibly be said that in these circumstances the sales of March 1980 and November 1981 were part of a composite transaction which constituted a disposal for the purposes of s 1 of the Development Land Tax Act 1976. I would dismiss this appeal.
Baylis (Inspector of Taxes) v Gregory: This is another scheme of the Dawson type but the path to fruition was even longer and rougher than in Craven v White. The facts are set out in the judgment of Slade LJ ([1987] STC 297 at 319). The critical fact is that at the time when the taxpayers exchanged the relevant shares for shares in the Isle of Man company prior negotiations with a particular purchaser had broken down and no other purchaser was then in view. Not until more than a year later did a potential purchaser emerge and a further six months elapsed before a sale was finally concluded. The first transaction accordingly took place as an exercise in strategic planning rather than with any particular subsequent transaction in mind and I did not understand that the Crown really disputed this. There can in these circumstances be no question of there being any nexus between the two transactions whereby they could together form any composite transaction for capital gains tax purposes. I would dismiss the appeal." (Craven v. White [1989] AC 398 at 480, per Lord Keith)
Identity of recipient/destination
- Disregard of intermediate distribution/recipient where it is an intermediate step in scheme
"[63] In those circumstances I do not think we need to decide whether the Winn Scarborough dividend was itself a transaction within s. 383 ITTOIA. [The taxpayer] said that there cannot have been two distributions of the same money as that cannot have been what Parliament intended, and this approach might give rise to absurd results.
[64] [HMRC] said that there were two possible answers. The first is that there was indeed only one distribution, namely the Winn Yorkshire distribution. This was because in a case where the Ramsay approach leads to a composite transaction being taxed as one overall transaction, the individual elements in the overall transaction are just mechanics and are subsumed into the overall transaction. They have no separate existence for fiscal purposes. I think this argument is well founded: see UBS per Lord Reed at [64], where he refers to schemes that "involve intermediate transactions inserted for the sole purpose of tax avoidance" and says that it is quite likely that a purposive interpretation "will result in such steps being disregarded for fiscal purposes". If this is right, the Winn Scarborough dividend has no separate existence for tax purposes; it is not to be viewed in isolation but simply as part of the means by which the Winn Yorkshire distribution reached its intended recipients." (Clipperton v. HMRC [2024] EWCA Civ 180, Nugee, Lewison, Newey, LJJJ)
- Dividend from subsidiary to intermediate Holdco and onward to Holdco not treated as single step, despite being pre-ordained
"First, I do not consider that a transaction whereby Staines receives a dividend from its subsidiary and is compelled to pay it over to Staines' holding company otherwise than by way of dividend is a logically defensible transaction. If a company in a middle tier in a corporate structure receives a dividend from below which on the group policy should be paid on to the holding company at the top of the structure, the natural thing is for it to be paid on up the line by way of dividend. To invent a contract which removes the power of the company in the middle tier, Staines, to do the normal and natural thing to achieve the desired end result, viz the receipt by BAT of the moneys involved, seems to me not so much to recharacterise as to denature a perfectly ordinary transaction.
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Thirdly, the application of the Ramsay/Furniss principles to the normal operation of the three-tier structure of BATCo, Staines and BAT, which the Crown accepts as one of the enduring consequences forming part of the end result of the scheme, seems to me to go further than has been done in any other decided case, in that it involves a recharacterisation of a perfectly normal and straightforward commercial transaction into a thoroughly abnormal and unusual transaction whose only merit (if that is the right word) is that it attracts a tax disadvantage. That seems to me to be going far beyond disregarding steps only taken for a tax advantage and not for any commercial purpose." (Pigott v. Staines Investments Co Ltd [1995] STC 114 at 142, Knox J)
- Sale of right to dividend to turn income into capital receipt disregarded: dividend received by vendor
"...the sale and assignment for value to Mallardchoice of the future right to the 1979 dividend was a discrete transaction directed to that dividend alone which was carried through by artificial and pre-ordained steps inserted for no business purpose. As such, the liability for tax on the indirect receipt of such dividend by Shurltrust has to be determined by stripping out the artificial steps and applying the provisions of the Taxes Acts to the real transaction, i e the payment of a dividend to the shareholder, Shurltrust, which received such dividend as income.
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irst, in my judgment Mr Nugee's basic premise is not correct. Section 470 only applies where 'the owner of any securities ... sells or transfers the right to receive any interest'. As I have already said, the Ramsay principle applies to the present case. In consequence, the artificial step inserted (i e the assignment by Shurltrust to Mallardchoice for value) falls to be disregarded in construing the relevant taxing provisions. Therefore, applying the Ramsay principle, the basic requirement to bring s 470 into operation (i e the sale of the right to the dividend to Mallardchoice) has to be disregarded. Accordingly, s 470 does not apply to this case and the income is not to be deemed to be the income of Mrs McGuckian." (IRC v. McGuckian [1997] STC 908 (HoL) at 913)
- Transfer of value by company treated as attributable to bonus for employee even though transfer made to trust
"[61] The second answer follows from HMRC's submission, which we accept, that we should view the transactions realistically. We find from the evidence, including the minutes of the meeting on 20 April 2012, the minutes of the meeting at 2.30pm on 23 November 2012, and Ms Tonkin's witness statement and oral evidence, that the Company's intention in implementing the scheme was to provide Ms Tonkin with a bonus. The transfer to Ms Tonkin had real and lasting consequences for her, in that once the transactions had been implemented, the Company owed her £740,000, which was credited to her director's loan account.
[62] HMRC's position is that viewed realistically, the transfer of value was from the Company to the Trustee. We note that what the Trustee received under the transactions was a promise by Ms Tonkin to pay £740,100 in ten years' time, and that more than 12 years later this payment has not been made, nor has the Trustee taken any steps to recover this debt. On this basis we do not accept that it is more realistic to view the transfer of value from the Company as having been made to the Trustee rather than to Ms Tonkin.
[63] HMRC are also in the uncomfortable position of taking a different position in relation to inheritance tax from that which they took for income tax, as set out in their letter of 29 June 2017. This states that "HMRC's primary position is that the Scheme results in payment of earnings to the employees from the employer in the form of either money or money's worth, in the form of gold"." (Tonkin v. HMRC [2025] UKFTT 750 (TC), Judge Gauke)
- No real beneficial entitlement to interest where no real benefit to receiving it as part of tax scheme
"[70] The FTT accepted that Houmet did not act as a trustee, but rightly concluded that that was not enough for Hargreaves to succeed. Hargreaves was unable to establish that, viewed realistically, the transactions conferred any benefit of an entitlement to the interest. There was no evidence to suggest that Houmet could have used the funds received for any other purpose, or that it could benefit from them in any other manner. There was no indication that it derived any meaningful margin or other profit from its participation in the arrangements. Further, Houmet's involvement was entirely ephemeral, being confined to successive assignments of interest very shortly before the loans in question were repaid. There is no suggestion that Houmet was either at risk as to the amount that might be paid, such that it might not be put in funds to pay for the assignment to it, or that it might be able to benefit from the receipt being higher than anticipated. On the former point (risk), I note that the terms of the assignments to Houmet are unknown, the evidence being limited to notices of assignment and demands for the interest (see para. 16(12) of the FTT's decision). It was therefore not established that Houmet's obligation to pay for the assignment was an unconditional one, rather than being entirely dependent on, and co-extensive with, the receipt of the interest.
[71] As a result, Hargreaves could not demonstrate that Houmet had any of the benefits that might be derived from any entitlement to, or receipt of, the interest. The fact that Houmet no doubt used (or was treated by the parties as using) the interest to pay for the assignment is, in the circumstances of its entirely tax-motivated and artificial involvement which was not demonstrated to give rise to any risk or meaningful reward, not sufficient to answer the statutory description in s.933.
[72] Parliament cannot be taken to have intended that the exception in s.933 should extend to a company in the position of Houmet, which was involved on an ephemeral basis by way of steps that were entirely tax-motivated, and which has not been established as having benefited in any real sense from the interest that it paid away. Houmet's involvement not only had no commercial purpose but had no practical or real effect." (Hargreaves Property Holdings Limited v. HMRC [2024] EWCA Civ 365, Falk, Jackson, Nugee LJJ)
- Successive short term trusts as mechanism to make outright gift treated as single, composite transaction
"The findings of the Special Commissioners were to the effect (a) that the two settlements were planned as a single tax-saving package, (b) that they had no purpose other than tax mitigation, (c) that at the time when the first settlement was executed there was no practical likelihood that the second settlement would not be made by Mrs Hatton, provided always that Mrs Cole was then still living, and (d) that the transactions did in fact take place as planned.
The question is whether on these findings the four essential elements identified by Lord Oliver in Craven v White are present so as to justify the court in treating the two settlements as a single composite transaction within the Ramsay principle.
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On the basis that the two settlements were made in circumstances which satisfied each of the four essential elements in Lord Oliver's formulation in Craven v White, the court must apply the provisions of the relevant taxing statute—in this case s 20(2) of and para 4(2) of Sch 5 to the 1975 Act—to the single composite whole formed by the series of preordained transactions (see [1988] STC 476 at 507, [1989] AC 398 at 514).
In the present case, when viewed as a single transaction having a single legal result, the composite transaction is a settlement by Mrs Cole under which she was entitled to a beneficial interest in possession of the settled property until midnight on 12/13 August 1978. At midnight on 12/13 August her interest in possession came to an end. She was then living; and accordingly tax is to be charged as if at that time she made a transfer of value, and the value transferred had been equal to the value of the property in which her interest subsisted—that is to say the property which she had settled on 10 August.
If the composite transaction is viewed as a single transaction, para 4(5) of Sch 5 can have no application. It follows that I answer the second of the questions raised by the case stated in the negative. In my judgment tax is to be charged under para 4(2) of Sch 5 as if Mrs Cole had made a chargeable transfer at midnight on 12/13 August 1978." (Hatton v. IRC [1992] STC 140, Chadwick J)
Temporary/short-lived states of affairs
- Circular flow of funds under pre-ordained transactions not income for tax purposes
"[139] In our case it is not disputed that the arrangements entered into by the Partners and the Partnership in respect of the Licence Fees formed a circular scheme which the FTT found to be a self-cancelling financing arrangement. We have also been able to trace clearly how the amounts borrowed by the individual Partners from BOS were, via acquisition of the Licence Fees, used to repay principal and interest on those borrowings.
[140] As a matter of economic reality, as [the Taxpayer] has pointed out, in this part of the Scheme nothing has really happened - money had been borrowed and that money is passed back to repay the borrowing.
[141] On first principles, and applying the basic "fruit and branch" analogy referred to by Launcelot Henderson in BlueCrest - there is no "fruit" for the individual partners
[142] We do not consider therefore that the arrangement gives rise to income. As Mr Bremner has submitted - the circular flow of funds does not answer to the description of income for tax purposes." (Vaccine Research Limited partnership v. HMRC [2025] UKFTT 402 (TC), Judge Tilakapala)
- Circular, self-cancelling movement of funds not capital expenditure
"[132] We agree with HMRC that the evidence was clear that a licence fee of this magnitude, put to this purpose, was not a regular feature of property development projects. It conferred a tax advantage on the individual investors by converting the interest cost into capital expenditure on which BPRAs could be claimed in the first year of the scheme.
[133] That feature alone would not prevent the arrangements from achieving their aim. However, the Interest Account mechanism was devoid of any real commercial purpose. Although (as with the Capital Amount) there was a real transfer of funds into an account in OVL's name and a charging of those funds by OVL, the arrangement was entirely circular and in substance self-cancelling. The fact that the LLP could have achieved the same economic result by holding onto the money itself and depositing it with the Co-op as security is relevant in undertaking a realistic appraisal of the facts because it highlights the circularity and self-cancelling nature of the arrangements and the lack of a strong and close nexus with the conversion works. These points serve to underline the lack of any real benefit to OVL from the Interest Amount." (London Luton Hotel BPRA Property Fund LLP v. HMRC [2023] EWCA Civ 362, Whipple, Falk, Lewison LJJJ)
- Brief cessation of legal ownership devoid of commercial purpose did not amount to disposal
"[86] Another way of expressing my conclusion would be to say that, on its true construction, section 61(1)(a) was intended by Parliament to operate in the real world of commerce, with the consequence that a brief interruption of the taxpayer's legal ownership of the assets, brought about solely by the scheme and devoid of any commercial purpose apart from tax avoidance, falls outside the scope of the statutory language, and the intermediate steps may therefore be disregarded. So viewed, the case is a good example of the type recognised by Ribeiro PJ in Arrowtown at [35]: see [6] above. It also falls comfortably within the principles stated by the Supreme Court in Rossendale at [11] and [12], quoted in [39] above. If the steps in the scheme are to be disregarded, the end result is that for the purposes of capital allowances the ownership of the assets remained throughout vested in the taxpayers. [Counsel for the taxpayer] helpfully confirmed in his oral submissions to us that, on this hypothesis, there was nothing upon which the scheme could operate, and it therefore had to fail." (HMRC v. Altrad Services Limited [2024] EWCA Civ 720, Henderson, Nugee, Whipple LJJ)
- Selling and repurchasing the same shares to crystallise a real loss
"There is nothing magical about tax mitigation whereby a taxpayer suffers a loss or incurs expenditure in fact as well as in appearance. A taxpayer who carries out a "bed and breakfast" transaction by selling and repurchasing shares establishes a loss for capital gains tax because he has actually suffered that loss at the date of the transaction. In "back to back" transactions the taxpayer is entitled to any reduction in tax which Parliament has attached to each transaction. " (Ensign Tankers (Leasing) Ltd v. Stokes [1992] 1 AC 655 at 676)
- Payment to trust, loan to employee, loan back to company might suggest nothing had really happened
"[87] This exposes the key point. The provision of a loan, at whatever rate of interest, provides access to the cash lent, but that cannot be considered in isolation from the repayment obligation. The existence of that obligation is critical. What is obtained is the benefit of the funds provided, but subject to an obligation to repay. The fact that the money went back to the Company cannot assist HMRC in demonstrating that the Payment was taxable, any more than the retention of the proceeds of the Loan by Mrs Currell, or indeed by Mr Currell, would have done. If anything, and given that the entire arrangement was "prewired", the fact that the Loan proceeds were returned to the Company might suggest that nothing had really happened." (HMRC v. Currell [2026] EWCA Civ 445, Falk LJ)
- Borrowing from lender to pay interest not disregarded because purpose of legislation was to produce symmetry between liability (for recipient) and deduction (for payer)
"[37] The need to avoid sweeping generalisations about disregarding transactions undertaken for the purpose of tax avoidance was shown by MacNiven v Westmoreland Investments Ltd [2003] 1 AC 311in which the question was whether a payment of interest by a debtor who had borrowed the money for that purpose from the creditor himself and which had been made solely to reduce liability to tax, was a “payment” of interest within the meaning of the statute which entitled him to a deduction or repayment of tax. The House decided that the purpose of requiring the interest to have been “paid” was to produce symmetry by giving a right of deduction in respect of any payment which gave rise to a liability to tax in the hands of the recipient (or would have given rise to such a liability if the recipient had been a taxable entity.) As the payment was accepted to have had this effect, it answered the statutory description notwithstanding the circular nature of the payment and its tax avoidance purpose." (Barclays Mercantile Business Finance Ltd v. Mawson [2004] UKHL 51)
Existence of obligation
- Transfer from trust amounting to a 'payment' notwithstanding equitable obligation to restore
"[82]...The question whether a "payment" is made for these purposes should be answered by looking at the practical, business reality of the transaction, including any composite transaction of which the payment forms part. If the intended purpose and effect of the transactions is that money leaves the scheme and is placed at the free disposal of the member, the mere fact that the money may be subject to an equitable obligation to restore it to the scheme will not prevent it from being a "payment" in the ordinary sense of that word. To conclude otherwise would deprive the charge to tax of effect in many of the most egregious cases where it is most needed." (Clark v. HMRC [2020] EWCA Civ 204, Henders, Bean, Nicola Davies LJJJ)
- Liability created for IHT avoidance purposes not ignored
"[134] That evidence appears to have been accepted by the FTT. The FTT found that despite the events which have occurred the parties involved in implementing the scheme intended to comply with the terms of the documents implementing the scheme at the time when the scheme documents were executed (FTT[26(1)]) and the true legal effect of the scheme documents was in accordance with their form and they gave rise to the rights and obligations set out in them (FTT[76]). A consequence of this is that the Note gave rise to a debt on the part of the Life Trustees and the Life Trustees still have an outstanding obligation to discharge the Note in accordance with its terms and the Family Trustees still have an entitlement to receive the proceeds of that discharge (FTT[78]).
[135] We do not accept Mr Davey's submission that these facts represent an unusual case such that the liability represented by the Note should not be deducted when valuing the property to which Mrs Elborne is treated as beneficially entitled. The language and statutory context of s49(1) does not support this submission, and IHTA 1984 includes specific provisions for the disallowance of certain liabilities, eg s103. Moreover, whilst in Rossendale Lord Briggs and Lord Leggatt referred to the SPVs as having no real or practical ability to exercise their legal right to possession, and to that legal right having been conferred for no purpose other than the avoidance of liability for rates, in the present case the FTT made findings as to the Note giving rise to a debt and there was no finding as to the purpose of the Life Trustees in issuing the Note on its particular terms." (Elborne v. HMRC [2025] UKUT 59 (TCC), Judges Zaman and Tilakapala)
Identity/nature of assets disposed of
- Transfer of shares for debenture that was redeemed 14 days later treated as exchange of shares for money
"[35]... In Carreras the transfer of shares in exchange for a debenture with a view to its redemption a fortnight later was not regarded as an exempt transfer in exchange for the debenture but rather as an exchange for money. In each case the court looked at the overall effect of the composite transactions by which the taxpayer company in Burmah suffered no loss, the shares in Furniss passed into the hands of the outside purchaser and the vendors in Carreras received cash. On the true construction of the relevant provisions of the statute, the elements inserted into the transactions without any commercial purpose were treated as having no significance." (Barclays Mercantile Business Finance Ltd v. Mawson [2004] UKHL 51)
"[7] Their Lordships agree that the question is whether the relevant transaction can be characterised as a reorganisation of share capital as defined in the Act, that is to say, as an issue of a debenture in exchange for shares. They also accept that if the relevant transaction is confined to what happened on 27 April by virtue of the agreement executed on that date, there can be no doubt that it fell within that description. On the other hand, if one is allowed to take a wider view and to treat the terms of the debenture and its redemption two weeks later as part of the relevant transaction, it looks very different. From this perspective, the debenture is only a formal step, having no apparent commercial purpose or significance, in a transaction by which the shares in Jamaica Biscuit were exchanged for money.
[8] Whether the statute is concerned with a single step or a broader view of the acts of the parties depends upon the construction of the language in its context. Sometimes the conclusion that the statute is concerned with the character of a particular act is inescapable: see MacNiven (HM Inspector of Taxes) v Westmoreland Investments Ltd [2003] 1 AC 311...
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[13] ... A restricted interpretation of the transaction contemplated by paragraph 6(1) would produce the result that exemption from tax could be obtained by a formal step inserted in the transaction for no purpose other than the avoidance of tax. This would not be a rational system of taxation and their Lordships do not accept that it was intended by the legislature. They agree with the majority of the Court of Appeal that the relevant transaction for the purposes of this legislation comprised both the issue and the redemption of the debenture and that such transaction, taken as a whole, could not be appropriately characterised as an exchange of shares for a debenture." (Carreras Group Limited v. The Stamp Commissioner [2004] UKPC 16, Lord Hoffmann)
- Asset transferred by grant of option followed by exercise treated as single composite transaction for transfer of the asset
"[48] The second stage in the analysis is that where, as here, there is a composite transaction comprised of a number of interlinked stages, the court is required to consider whether the composite transaction considered in the round has relevant tax consequences: see para 12 of Rossendale (quoted in para 37 (iii) above). Since the transfer of the gilt strip from the appellant to Investec was effected by means of a unified, composite, transaction, having more than one stage, to apply the statute to only one of those stages would be to take an inadmissibly blinkered view.
Investec needed first to take the assignment of the Option and then second to exercise it. Without taking the first step, it would have had no right to take the second. The amounts payable at each step were predetermined.
The UT put the point well in the following passage (with which I agree):
[49] However, the grant and assignment of the option were simply two steps, necessary although insufficient, in a composite transaction effecting a transfer of the entire interest in the gilts to Investec. The assignment of the option was a part of the transfer of the gilts under the scheme. On a realistic view, the grant and assignment of an option to purchase the gilt strips, and the exercise of the option were all parts of the means by which the gilt strips were transferred from the Appellant (and eventually purchased or acquired by Investec).
[50] A purposive interpretation of the payment on the 'transfer' means that the 'transfer' should not be artificially divided or separated so that only the payment in respect of the exercise of the option could be considered the amount payable on the transfer. The payment for the assignment of the option was a necessary step in a composite scheme designed to effect a transfer of the gilt strips for which a series of transactions and payments was required. The payment for the assignment of the option to Investec was properly construed to be part of the amount payable on the transfer of the gilts from the Appellant and to it."
In my judgment, Parliament cannot realistically be taken to have intended to create a regime under which a taxpayer would be able to generate a relievable loss by transferring a strip to another person in return for an amount payable by the other which matches the amount the taxpayer had paid for it, simply by dividing the amount payable for the transfer into a series of separate sums contracted to be payable by reference to earlier steps in the pre-ordained scheme.
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[54] I do not accept this submission. For the reasons given above, the inputs into paragraph 14A(3) are themselves to be given a purposive, practical meaning. The words on either side of the word "on" are "the amount payable" and "the transfer [of a strip]". There is no difficulty in reading the words purposively as including the amount payable for (or in return for) the transfer. And, for the reasons already given, approaching the facts realistically, in my view it would be unduly artificial to say that Investec only had to pay £150,000 on (in the sense of in return for) the transfer of the strip, when it actually had to pay nearly £1.5 million to acquire them." (Watts v. HMRC [2025] EWCA Civ 1615, Miles, Lewison, Arnold LJJ)
- Gift of shares to trust followed by company purchasing own shares not treated as a gift of cash
"[25] We do not consider that there is any inserted step which could be cut out in such a way so as to transform the gift of shares into a gift of cash. The starting point was that the brothers owned shares. The end result was that the settlement had cash. An inserted step cannot, by definition, be either the starting point or the end result. One cannot cut out the transfer of the shares to the trust and still have the cash in the trust; one cannot cut out the purchase of own shares and still have cash. Even if, as Mr Twiddy suggested, one considers the making of the settlement as a separate transaction, which we do not think one can, because that would mean that there was initially no settled property, we do not see any way in which a gift of shares can become a gift of cash, because the ownership of shares is part of the starting point. Mr Twiddy was really arguing that because (on the hypothesis, which we have found not to be the case, that there is a single composite transaction) the brothers knew that the shares were about to become cash, in some way the brothers had inserted the shares into a transaction which would have been made with cash. As Lord Keith of Kinkel said in Countess Fitzwilliam v IRC [1993] STC 502 at 515, [1993] 1 WLR 1189 at 1203: 'No case applying the Ramsay principle has yet held it to be legitimate to alter the character of a particular transaction in a series or to pick bits out of it and reject other bits.' We can see no way in which an inserted step can be cut out in order to turn shares into cash." (Reynaud v. IRC [1999] STC (SCD) 185, Judge Avery Jones)
- Loan notes which employees had control over redemption (through being director/shareholder) regarded as money
"[101] In the light of the FTT’s findings that the Employees could have procured that the Loan Notes were redeemed at any time, the fact that the time of redemption and whether it took place at all was not pre-ordained is of no significance, particularly in the light of the FTT’s findings that it was not intended that the NewCos would undertake any other commercial transactions. As Mr. Gammie submitted, Lord Drummond Young’s analysis in Aberdeen was based on the practical control that the employees had over the cash, rather than the precise pre-ordained steps. The question as to when that practical control would be exercised was irrelevant.
[102] In our view, the position in relation to these appeals can be distinguished from that in the UBS decision. We are not saying that the Loan Notes are not to be regarded as securities, but that the Employees should be treated as receiving money earnings equivalent to the principal amount of the Loan Notes and therefore the restriction in the Loan Notes should not be taken into account in valuing them. It is clear from paragraph [92] of Lord Reed’s judgment in the UBS decision, quoted at [85] above, that the facts were quite different in that case. The redeemable shares issued in those cases were not wholly represented by cash but by other assets whose value could vary. The underlying asset in this case was cash. Lord Reed recognised at [97] of his judgment, quoted at [87] above, that the term “money”, construed purposively, might apply to arrangements which, viewed realistically, were no more than disguised or artificially contrived methods of paying cash to employees. In our view, that is precisely the position in this case." (Cyclops Electronics Ltd v. HMRC [2018] UKUT 7 (TCC), Marcus Smith J and Judge Herrington)
- Shares in cash box company treated as money
[38] In my opinion this opinion reads the word 'payment' too narrowly in the context of the PAYE legislation. It amounts in effect to saying that for payment to occur an employee must have a direct legal 'right', in a very strict sense, to the funds that are paid, and it is not enough that the employee can, by exercising a power that has been conferred upon him, obtain the beneficial use of those funds. That involves a concentration on strict legal form rather than the substance of the transaction, and treats the form as critical. Perhaps more importantly, it takes one aspect of the complex transaction contained in the Scheme, namely whether an employee has a direct right to payment of the funds paid into the Scheme by the employer, and treats that as determinative of whether there is a 'payment' to the employee. Under the Ramsay approach, however, the transaction under consideration must be viewed 'realistically' (Ribeiro PJ in the Arrowtown Assets case, cited above at paragraph [25]). That clearly requires the transaction to be looked at as a commercial whole. In the present case the First-tier Tribunal expressly found that the Scheme was conceived as a whole, to channel money from the appellants to the favoured employees. When such a transaction is viewed realistically, as the unity that it was intended to be, it is apparent that the employee-shareholders had ample power to ensure the beneficial use of the funds that had been transferred by the appellants into the money box companies. The fact that powers conferred by company law might have to be exercised to achieve that purpose if the directors are not compliant does not matter; it is the substance of control, and in particular the ability to use the funds in the companies as a medium of exchange for the benefit of the employee, that is important. In this connection it should be noted that, even if funds are paid into the employee's bank account, the employee will require to exercise a legal power in order to make beneficial use of them, namely the power to direct the bank how the funds due to him are to be applied, as by writing a cheque or directing a credit transfer. In my opinion there is no material difference between that power and the powers that the employee-shareholders in the present case had to determine the beneficial use of the funds provided by the appellants as employer. This accords with the test applied in Garforth, where Walton J held that payment occurred 'when money is placed unreservedly at the disposal of directors by a company' (52 TC 529). Nothing is said there about any need for a 'clear' or 'direct' legal right to payment; Walton J rather considered that it was the practical ability to make use of the funds that was important." (Aberdeen Asset Management Plc v. HMRC [2013] CSIH 84)
- Assignment of trade debts treated as cash
"[39] Reference was also made to Spectrum Computer Supplies Ltd v Revenue and Customs Commissioners, [2006] STC (SCD) 668, a case where a director was paid a bonus by the assignment of trade debts due to his employer. The Special Commissioners applied the Ramsay principle and held that the assignments were payments and consequently subject to the PAYE regime. It was pointed out (at paragraph 18) that where a debt is payable on demand, as is the case with a cheque, it is traditionally treated as cash even though conceptually it is a debt due from the bank, a situation that was not unlike the book debts that had been assigned in that case. Nevertheless, the Special Commissioners analyzed the transaction as amounting, realistically, to a mechanism to deliver cash rather than to give the employee an asset that could be enjoyed in kind. In effect, it was held that some assets are as good as cash and should be treated as such for the purposes of the PAYE legislation. I agree entirely with such an approach, which seems to me inconsistent with the argument for the appellants." (Aberdeen Asset Management Plc v. HMRC [2013] CSIH 84)
- Grant of contingent reversionary interest in settlement treated as cash
"[41]...As I see it, viewing the matter through Ramsay eyes, the composite transaction in the instant case involved only three relevant stages: first, the purchase by DTE of the contingent reversionary interest; second, the assignment of that interest to Mr MacDonald; and third, the payment of the cash sum by the trustee to Mr MacDonald when the interest fell into possession. If it is legitimate to apply the Ramsay principle to the application of the provisions relating to PAYE to that composite transaction, then to my mind only one result can follow. As the Special Commissioner rightly said:
"The company decided that Mr MacDonald should have a £40,000 bonus; Mr MacDonald got that bonus; that is - in both senses - the beginning and the end of the matter."
So far as the Ramsay issue is concerned, therefore, the only question (to my mind) is whether it is legitimate to apply the Ramsay principle - or, if one prefers, adopt a Ramsay approach - to the concept of "payment" in the context of the statutory provisions relating to PAYE. In my judgment it plainly is. I accept Mr Glick's submission that in the context of the PAYE system the concept of payment is a practical, commercial concept. In some statutory contexts the concept of payment may (as Lord Hoffmann pointed out in MacNiven) include the discharge of the employer's obligation to the employee, but for the purposes of the PAYE system payment in my judgment ordinarily means actual payment: i.e. a transfer of cash or its equivalent." (DTE Financial Services Ltd v. Wilson [2001] EWCA Civ 455)
- Payment of bonus in the form of platinum sponge accompanied with arrangements to sell for cash was payment of cash
"[68] What the Crown finds objectionable is the circularity of the cash flow combined with the fact that the transaction took place entirely for tax purposes. And I accept that for the purposes of some concepts used in tax legislation, these two features would stamp the transaction as something different from that contemplated by the legislature. For example, I have no doubt that Langley J was right when he recently decided in NMB Holdings Ltd v Secretary of State for Social Security (unreported) 14 July 2000 that a payment of bonuses to directors in the form of platinum sponge held in a bank, accompanied by arrangements under which they could immediately sell it for cash to the bank, was not a "payment in kind" which fell to be disregarded for the purpose of National Insurance Contribution. In commercial terms the directors were paid in money. It is obvious that such a transaction was not what the Social Security (Contributions) Regulations 1979 (SI 1979/591) contemplated as a payment in kind. But there can be equally little doubt that the bonuses were "paid" and, in the absence of some contrary context, I can see no reason not to treat them as paid when the directors were credited with platinum sponge and the employer's obligation to pay them was discharged." (MacNiven v. Westmoreland [2001] UKHL 6)
Characteristics of assets
- Disregard of condition attached to bonus having no commercial purpose/motive
"[14]...(5) there was no business or commercial purpose for the insertion of the condition in the case of each Bonus. That condition was commercially irrelevant and its purpose was solely to secure that the interest in the relevant Loan Notes fell within 1998 legislation.
In relation to this question, Mr Sherry, who was appearing before us on behalf of the Appellant, submitted at the hearing that a distinction could be drawn in this case between motive and purpose, at least in the context of the Second Loan Notes. He said that:
(a) the "purpose" of a provision was what it would do and why it would do it and that was different from the "motive" underlying the insertion of the provision; and
(b) whilst there may not have been a business or commercial motive for the insertion of the condition in relation to the Second Loan Notes, the condition nevertheless had a business or commercial purpose in that CP's death within the relevant conditionality period would have resulted in the Loan Notes passing back to the Appellant and that would have made sense commercially in that CP was the driving force behind the Appellant and his death would undoubtedly have damaged the Appellant's business and profitability.
This submission is the same as the one which Mr Sherry made in Cyclops Electronics Ltd and another v The Commissioners for Her Majesty's Revenue and Customs [2018] UKUT 7 (TCC) ("Cyclops"), an Upper Tribunal case relating to the 2003 legislation which we discuss later in this decision, as recorded in Cyclops at paragraphs [62] to [65].
We are not persuaded by it for similar reasons to those recorded by the Upper Tribunal in Cyclops when commenting on the First-tier Tribunal's decision in that case - see Cyclops at paragraphs [67] to [69]. In short, we have been provided with no evidence to the effect that the purpose of the condition in the case of the 2003 Bonus was to ensure that the Second Loan Notes reverted to the Appellant in the event of CP's death within the conditionality period or evidence as to why that was desirable from the commercial perspective. We accept that CP's death within the conditionality period would have had a meaningful commercial effect but, as the Upper Tribunal noted in Cyclops, effect is not the same as purpose.
This conclusion is not very different from our conclusion in paragraph 14(4) above to the effect that the creation and funding of PIL as part of the proposals to pay the Bonuses did not form part of the purpose of CP and the Appellant in entering into the proposals. That too was something which had a meaningful commercial effect but it could not be said to amount to a purpose in entering into the proposals;
...
[75] It follows from this that we can see no basis on which to distinguish the purposive construction of the condition-related language in the 2003 legislation which was adopted by the Supreme Court in UBS from the purposive construction of the condition-related language in the 1998 legislation in which we are now engaged and therefore that, on a purposive construction of that language, a commercially irrelevant condition which has been inserted solely to bring an award within the ambit of the 1998 legislation does not fall within the scope of that legislation. " (Lynx Forecourt Limited v. HMRC [2024] UKFTT 278 (TC), Judge Beare)
- Shares with very limited rights intended to create artificial relationship not regarded as issued share capital
"[152] ... The shares were created and issued in order to meet the qualifications for exemption from stamp duty in s 45 of the Ordinance. This was explicitly stated in the Heads of Agreement. They had no other purpose. This was not seriously disputed. Leaving aside for the moment their nominal value and the right to appoint a director of Prepared and Arrowtown which was attached to them, they had no commercial content at all. They carried no rights to dividends or capital on a winding up. If shares are considered as a bundle of rights, they had barely even a shadowy existence.
...
[157] Section 45 is not an end in itself. The words 'issued share capital' in the section, properly construed, mean share capital issued for a commercial purpose and not merely to enable the taxpayer to claim that the requirements of the section have been complied with. It follows that the 'B' non-voting shares issued to Shiu Wing are not 'share capital' within the meaning of the section, and should be disregarded when calculating the proportions of the nominal share capital owned by Shiu Wing and Calm Seas respectively." (Collector of Stamp Revenue v. Arrowtown (2003) 6 ITLR 454, Lord Millett)