CGT family planning not abusive on company sale

In Olivia Wilkinson and others v HMRC [2023] TC 08887, the First Tier Tribunal (FTT) decided that HMRC was not able to deny Capital Gains Tax (CGT) relief on a share-for-share exchange that subsequently allowed the daughters of a company's owner to claim Entrepreneurs' Relief (ER) after a take-over. The CGT planning exercise was not one of the main purposes, nor the main purpose, of the deal.

• Mr and Mrs Wilkinson owed about 56% of P Ltd on 14 July 2016. They Gifted their three daughters 6,951 shares from a combined shareholding of 51,000.  
• P Ltd was sold on 18 July 2016 to TFI Ltd for approximately £130 million.
  • Under the terms of the sale under a Share-for-Share Exchange, each daughter received £10 million nil rate payment 'A' loan notes and 500 B ordinary shares in exchange for their shareholdings in P Ltd, and was appointed a director of a 100% subsidiary of P Ltd, the appointments to last for at least one year.  
  • Advance Clearance had been received from HMRC.
• A year later each of the daughters redeemed their loan notes for £10 million and sold their shares in TFI Ltd to an affiliated company of TFI Ltd at their nominal value (£50).
  • They then each resigned as a director, which allowed them to qualify for and claim Entrepreneurs' Relief (since re-named Business Asset Disposal Relief) on the full amount of the gain arising from the disposals.
• HMRC raised an assessment for CGT, denying share-for-share relief on the basis that one of the main purposes of the CGT planning scheme (whereby the daughters would get ER) was the avoidance of CGT.
• The taxpayers Appealed.  

The FTT found that: 

• There was no CGT planning scheme. 
  • Mr and Mrs Wilkinson would have proceeded with the sale even without their daughters being able to claim ER. 
  • Proportionally, the tax saved only represented a small amount of the total (the value of the tax planning was about £3 million whereas the proceeds to the family were about £73 million).
• s.137 TCGA 1992 was not engaged because CGT planning including the claim for ER was not one of the main purposes, nor the main purpose, of the deal.  

The appeal was allowed. 

Useful guides on this topic 

Share-for-Share Exchanges
How does tax relief for a share-for-share exchange work? What are the rules for an exchange of shares or securities? Are there anti-avoidance rules to consider? When is tax clearance needed?

CGT: Gifts, At a glance 
What are the CGT implications of giving away assets? What exemptions and reliefs are there? 

IHT: Gifts  
What is the Inheritance Tax (IHT) implication of giving assets away? What exemptions and reliefs are there for gifts? 

Business Asset Disposal Relief (Entrepreneurs' Relief): At a glance 
What is Business Asset Disposal Relief (BADR)? When does it apply? What rate is it? How is it claimed?   

Appeal: How to appeal an HMRC decision?  
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External links 

Olivia Wilkinson and others v HMRC [2023] TC 08887