In Jasper Alexander Thirlby Conran and another v HMRC [2022] TC08391, the First Tier Tribunal (FTT) agreed with HMRC that the sale of the designer's optical business for £8.25 million was overvalued. Without licences to use Jasper Conran's valuable trade marks, the actual market value was just £1. The amount paid was not a distribution or subject to CGT for Mr Conran and the buyer, a related company was denied relief under the Intangibles rules.

  • Jasper Conran was the majority owner of Jasper Conran Optical LLP, which had a 5-year licence agreement with Specsavers to supply and sell Jasper Conran eyewear.
  • In 2008, the optical business was transferred by the Limited Liability Partnership (LLP) into JC Vision Limited (JCV) by way of Incorporation, part of Mr Conran's 100% Corporate group, for £8.25 million. 
  • Mr Conran paid Capital Gains Tax (CGT) on the disposal of £1.4 million and JCV claimed Intangibles Relief on the consideration paid by way of amortisation of post-2002 goodwill that was the main part of the transfer.
  • The sale did not include any licences to use the Jasper Conran trademarks.
  • HMRC concluded that without the Jasper Conran licences, the business was incapable of operating. They valued the business at a nominal value of £1, denied the amortisation of the consideration paid and assessed Mr Conran as having received a distribution.
  • HMRC argued that Schedule 29 Finance Act 2002 required market value to be used when intangible assets were transferred between Related parties, meaning the value of the intangibles transferred was £1 not £8.25 million.
  • HMRC also argued that the payment of £8.25 million was out of the assets of JCV and made in respect of its shares held by its indirect shareholder Mr Conran. This made it a distribution as per the legislation of the time (s.209(2)(b) ICTA 1988).

The FTT agreed with HMRC that the value of the assets transferred was only £1, as they were only capable of operating as a business with the addition of the trade marks, which were not transferred.

The £1 value meant that the £8.25 million did not represent the value of the intangible assets that were transferred and so JCV's appeal against the denial of intangibles relief was dismissed. 

The FTT also held that the £8.25 million received by Jasper Conran was not a consideration subject to Capital Gains Tax, but neither was it a distribution as the payment was not received by reason of his (indirect) shareholding in JCV. Mr Conran's appeal was upheld and his tax liability on the receipt of the £8.25 million was reduced to nil.

Comment

The FTT concluded that the excess of the £1 paid was neither a distribution nor a capital disposal, if so what was it? We are no wiser! Mr Conran had already paid £1.8m in CGT and as the event was back in 2008 HMRC is totally out of time to attempt to collect PAYE. Even if it did, it would have had to access Mr Conran's employer: presumably one of the related party companies.

Useful guides on this topic

Incorporating an existing business
How to transfer an existing sole trader's business by incorporation into a company.

CGT: Connected persons
Who is a connected person for Capital Gains Tax (CGT) purposes? Why does this matter?

CGT: Reliefs, disposal of a business or its assets
Which Capital Gains Tax (CGT) reliefs apply when a person replaces or disposes of an asset used by a business, the whole or part of a business, or shares in a company?

Goodwill and the intangibles regime
How does the Corporation Tax intangible regime work? What is the treatment of goodwill for Corporation Tax? Do companies account for goodwill differently?

External link

Jasper Alexander Thirlby Conran and another v HMRC [2022] TC08391


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