Article

Timing, timing, timing!

Key points

• It seems that the transactions in securities rules have always applied to the distributable reserves of companies in the same group as the company whose securities were transacted, although this was only made explicit in the 2016 changes to the legislation.
• Where the company concerned does not have sufficient distributable reserves, but the relevant consideration is left on a loan account, the relevant consideration may be in respect of future dividends of the company.
• The company referred to in ITA 2007, s 685 does not have to be the same company as that mentioned in s 684.
• For counteraction assessments before the 2016 changes, the time limit for raising an assessment was the normal four-year limit for any normal assessment, and the transactions in securities rules did not give HMRC the power to raise assessments up to six years after the end of the tax year in which the income tax advantage arose.
• Following the 2016 changes, this point is no longer relevant, but there are well over 100 cases pending under the old rules, which would fall away if this part of the decision is upheld.

Cases involving the transactions in securities rules appear to be a bit like London buses; you wait for ages and then suddenly several come along at once! Following the decisions in Osmond & Allen (TC9163) and Hunt (TC9519), we now have the decision of the First-tier Tribunal (FTT) in Oscroft (TC9787). Spoiler alert: for readers who are not interested in the full discussion, the taxpayers won, although I am sure that HMRC will appeal the decision.

The reason for the plethora of recent cases, as readers may already be aware, is the tax planning that many people undertook towards the end of the 2015-16 tax year, just before some major changes to the transactions in securities legislation came into force.

Background

The transactions in securities rules are, very broadly, designed to prevent the extraction of a company’s profits in capital form, thus materially reducing the tax burden on the proceeds. The repayment of the share capital of a company might fall within the technical conditions of these rules, if the company also has distributable reserves, so that dividends subject to income tax could have been paid instead. However, as a practical matter, where the shareholders had actually subscribed for those shares originally, or acquired them from the people who had subscribed for those shares originally, my experience has been that HMRC does not generally seek to counteract the income tax advantages arising, although it is also not generally inclined to grant pre-transaction clearance for these transactions. However, where the share capital that is repaid has been enhanced by a prior transaction, such as a share exchange, HMRC does seek to apply the transactions in securities rules, presumably because the shares were not actually subscribed for using external funds, as the enhanced share capital is effectively an artefact of the share exchange mechanism. Both Osmond & Allen and Hunt concerned repayments of share capital that had been enhanced in this way, as is Oscroft.

One of the changes to the transactions in securities rules in 2016 was the addition of the repayment of a company’s share capital or share premium to the list of transactions that were to be treated as a transaction in securities for the purposes of this legislation (ITA 2007, s 684(2)(e)). While I, and others, considered this to be technically an unnecessary addition – because the reduction of capital of a company is obviously a transaction in securities – I assume that some advisers believed that this was actually a change in the law, rather than a clarification, and therefore encouraged their clients to consider repaying share capital prior to the changes coming into force on 6 April 2016 in cases where that share capital had been enhanced by a prior share exchange.

The transactions in securities legislation operates by looking at the ‘relevant consideration’ received by the shareholders and asking whether that relevant consideration ‘is or represents the value of assets which are available for distribution by way of dividend by the company’, or is consideration ‘received in respect of future receipts of the company’ (from ITA 2007, s 685(4) as it read before the FA 2016 changes). Both these provisions were considered by the tribunal, as was the question of which company the rules refer to.

Facts

Mr Oscroft, and his colleagues Mr Garnett, Mr Wesson and Mr Kitchen, were the shareholders of Whitemeadow Group WMGH Ltd (WMGH), which had acquired Whitemeadow Furniture Limited (WMF) in December 2011 by a share exchange transaction. In this case, a relatively small number of shares was issued by WMGH, and WMGH also recognised a merger reserve of about £1.83m. In February 2016, the merger reserve was capitalised by issuing £1.8m of new share capital to the shareholders, and the company’s share capital was then reduced by a slightly larger amount (£1.89m) with the capital being returned to the four shareholders.

HMRC counteracted the income tax advantages for all four shareholders and the case proceeded to the FTT.

One interesting feature of this case is that the shareholders did not argue that they were excluded from the transactions in securities rules by the ‘escape clause’ or motive test, that the return of capital did not have a main purpose of obtaining an income tax advantage (ITA 2007, s 684(1)(c)). Instead, the case was argued on a number of technical points.

• Should the reserves of the subsidiary be taken into account?
• Was the consideration in respect of future receipts of the company?
• Whether the close company for the purposes of the legislation was the company making the payments?
• Were the assessments made in time?

To my mind, the most important of these is the last one, which was the point on which the taxpayers were successful.

Relevant consideration?

The first issue the FTT had to consider was – when considering the value of assets that were available for distribution by way of dividend by the company – whether this referred only to the distributable reserves of WMGH, or those of WMF, as well. At the time, WMGH’s reserves were a little over £700,000, and the reserves of WMF were in excess of £4m, so if the shareholders’ contention that only the reserves of WMGH should be taken into account, HMRC’s counteraction would be limited to around £700,000, rather than the full £1.89m returned to Mr Oscroft and his colleagues.

The appellants’ arguments

The appellants argued that ITA 2007, s 685(2) refers to a person receiving ‘relevant consideration in connection with the distribution, transfer or realisation of assets of a close company’ and, in that context, relevant consideration is defined (in ITA 2007, s 685(4)) as ‘consideration which is or represents the value of assets which are available for distribution by way of dividend by the company’. So, the company referred to in s 685(4) must be the same company as in s 685(2), and not that company plus any subsidiaries. To interpret the legislation otherwise would be to pierce the corporate veil, which would require clear wording in the legislation. Indeed, they pointed out that this was precisely the effect of one of the FA 2016 changes, which extended the definition of relevant consideration to include the assets available for distribution of companies controlled by the company mentioned in s 685(2).

They also noted that the legislation refers to assets that are available, ie in the present tense, meaning that the legislation looks at the distributable reserves of the company at the time of the relevant consideration being paid, not at some other time when the parent had received a dividend or other distribution from its subsidiary.

A purposive interpretation, as proposed by HMRC, would also potentially apply to any amounts due to the company that were unpaid or deferred, which would not only mean that the dividend capacity test was redundant, but it would also remove the distinction between current reserves and future receipts, referred to later.

HMRC’s arguments

HMRC‘s approach was that the legislation was intended to put taxpayers in the same position as if they had received the distributable reserves of a company, including its subsidiaries, as dividends for income tax purposes. Therefore, the legislation must take into account the reserves of subsidiaries, otherwise there ‘would have been a gaping hole in the legislation from 1960 to 2016’. HMRC contended that this would be absurd and that absurd or unlikely results should be avoided, citing Lord Hodge in Project Blue [2018] UKSC 30.

The legislation should be considered purposively – like all anti-avoidance legislation – to include ‘assets legally and economically within the control of the company’. Far from piercing the corporate veil, HMRC considered that this was ‘an application of company law’. The appellants were the majority of the directors of both companies, so that WMGH could have compelled WMF to declare dividends through the normal operation of company law. Indeed, WMGH could also rely on the Duomatic principle (set out in In re Duomatic Ltd [1969] 2 Ch 365; see also my article on Peter Gould [2024] STC 1845 in Taxation, 9 January 2025) ‘that the informal approval of all the members of a company is sufficient to ratify a breach of fiduciary duty’.

HMRC also noted that, in its view, the changes to the transactions in securities rules in 2016 were for the purposes of clarification, in this respect, and not a change in the scope of the statute.

Decision

First, the tribunal noted that tax advisers generally had thought, prior to 6 April 2016, that the distributable reserves of a subsidiary were not to be taken into account in determining relevant consideration. However, the judge said that this view is not helpful or determinative. Nor were the explanatory notes to the Finance Bill, as they referred to both clarifying and improving the legislation but did not explain which changes were which.

On the substantive point, the tribunal agreed with HMRC and said that ‘the word “available” is, in my view, wide enough to encompass assets which the company controls such that it can, in effect, “gather in” those assets as it chooses’. Therefore, the distributable reserves of WMF were, in that sense, ‘available’ to WMGH at the time of the transaction.

Furthermore, the FTT said that this was not an absurd result. The assets of a subsidiary could reasonably be said to be available to the parent company, because the parent controls the subsidiary. But this does not extend more broadly to any other unpaid or deferred amounts due to the company, where the company is not in control of the potential payer.

Discussion

I do not agree with this part of the decision, and I wonder whether the tribunal would have decided differently if the legislation had not been changed in 2016 to explicitly include the distributable reserves of subsidiaries. While the judge ‘concluded that the pre-April 2016 legislation could encompass the distributions of a wholly owned subsidiary’, I am not aware of any cases where HMRC has argued this point between 1960 and 2016 (when the rules changed). Indeed, I find it noteworthy that the arguments in the instant case did not cite any decided cases, despite the fact that there have been a lot of cases on the application of the transactions in securities rules.

It seems to be somewhat trite to say that the directors of a parent company could procure – formally or otherwise – that the subsidiary pay up its reserves, and that those reserves are therefore available to the parent to pay out as a lawful dividend. The fact is, that unless and until the subsidiary does so, those reserves are not available to the parent, as a matter of company law.

Assuming that HMRC appeals the decision on the final point of the judgment, I suspect that the taxpayers will cross appeal on this point. From a practical perspective, however, the 2016 changes mean that this point is not relevant to transactions in securities that complete on or after 6 April 2016, as the reserves of subsidiary companies are explicitly brought into the regime.

Relevant consideration for future receipts?

Having succeeded on their first argument, it was not strictly necessary to consider HMRC’s alternative arguments as to the meaning of relevant consideration. However, as they were fully argued, the judge felt it appropriate to decide on those other points as well. The first point was whether the relevant consideration was in respect of future receipts of the company, if that consideration was not or did not represent amounts available for distribution by the company.

The appellants’ arguments

The appellants argued that the amounts concerned had been credited to their loan accounts with the company and had, therefore, been paid. The mechanics as to how the loan accounts could then be repaid were irrelevant. There was no direct connection with any future receipts and the company did not have any known future receipts that were ‘earmarked to satisfy the loan accounts’.

They also contended that the subsidiary only realised that it had sufficient distributable reserves to pay a dividend a month or so after the transaction in securities, which I have to say sounds unlikely!

If HMRC was right, the appellants said that this would mean that ‘any debt consideration exceeding available reserves would automatically be treated as being in respective future receipts’ which was ‘too broad an interpretation even for anti-avoidance legislation’.

HMRC’s arguments

HMRC argued that the receipt of consideration by crediting the loan accounts ‘could only be discharged out of future receipts of the company’. The sums due to the appellants were repaid initially by a loan from the subsidiary, which was subsequently discharged by distributions over the period up to December 2016. This view was supported by a report from the appellants’ adviser that said they would be able to draw against their loan accounts when funds were available in the company, and HMRC said that the ‘natural interpretation of this is that future receipts would be used to satisfy the consideration’.

HMRC said the appellants were wrong to say that the consideration was received in connection with the realisation of the merger reserve, so the realisation of the loan accounts was irrelevant. Just because there was a connection between the two ‘did not mean that the consideration could not also be received in respect of future receipts of’ WMGH.

Decision

The tribunal clearly found it very easy to agree with HMRC on this point, saying that if the relevant consideration was paid by crediting their loan accounts, the mechanism by which that loan would be repaid is ‘clearly a relevant factor to considering whether it is received in respect of future receipts’.

The legislation is intended to apply when ‘future income which would otherwise be distributed by way of dividend’ is converted into ‘an amount which would otherwise not be subject to income tax’. The appellants’ argument that future receipts must be ‘specific identified (predictable or earmarked) amounts’ is ‘too narrow a view of the legislation as it contains no such restrictive wording’.

Therefore, the phrase ‘in respect of future receipts’ can include ‘debt consideration in excess of reserves which is to be funded by unspecified future income’, and HMRC was successful on this argument.

Discussion

I do not disagree with this part of the decision. But this question of what is meant by ‘in respect of future receipts’ is one which has interested me for a while.

For a long time, I believed that this phrase was intended to cover a situation where loan notes were issued in a transaction and subsequently redeemed, so that the issue of the loan notes was in respect of future receipts of the company. However, 15 or so years ago I was asked to give a presentation on the transactions in securities rules to HMRC, which the then head of the clearance unit also attended. When I made this point, he disagreed but also said that, despite their best efforts, he and his team had been unable to find any information in the original policy papers as to what was, in fact, intended by this provision. And there the matter has rested until this decision.

The other question that I have considered is whether there is a difference between this situation, where amounts were credited to a loan account and the company did not have the money to pay that debt, and situations where the company has available cash, so the monies could be drawn immediately. In my view, if the company has the money to pay the consideration, a credit to a loan account cannot be in respect of future receipts.

This may be a matter for a future tribunal to consider, but I think Oscroft highlights the fact that, if the loan account cannot be immediately repaid, the relevant consideration has to be in respect of future receipts.

Which company does ITA 2007, s 685(2) refer to?

Section 685(2) refers to a person receiving relevant consideration ‘in connection with … the distribution, transfer or realisation of assets of a close company’ (my emphasis). Although Mr Oscroft and his colleagues received consideration on the reduction of capital of WMGH, HMRC’s second alternative contention was that the close company referred to here could, in fact, be WMF, the subsidiary, instead.

HMRC’s approach

HMRC argued that ITA 2007, s 684 and s 685 could refer to different companies. Section 684 requires a transaction in the securities of a company, and s 685 requires the relevant consideration to be in connection with the distribution etc of a close company, but HMRC said that the company in s 685 does not have to be the same company as the company whose securities were transacted in s 684. Are you with me so far?!

HMRC cited the FTT case of Marcus Bamberg [2010] (TC618) in support of its position. Mr Bamberg owned a trading company, TTEL, with available distributable reserves. TTEL acquired a third-party company, WCL, for £2. WCL had negative reserves and outstanding loan notes totalling £15m. Mr Bamberg also bought the loan notes personally, for £237,000. Subsequently, TTEL made loans to WCL, which then used that money to repay some of the loan notes held by Mr Bamberg. HMRC succeeded in its contention that the transactions in securities rules applied to the debt repayments by WCL as being consideration that was or represented the distributable reserves of TTEL.

In Bamberg, the transaction in securities was the redemption of WCL‘s loan notes, but that repayment was held to represent the distributable reserves of TTEL, the parent. The instant case is the other way round, in that the repayments of share capital by the parent, WMGH, represented the distributable reserves of the subsidiary, WMF.

HMRC’s position was that the legislation looked at the economic reality, which was that the consideration received by the appellant represented the distributable reserves of WMF, even though it was paid by WMGH.

It also said that ‘to exclude WMF from consideration would create a significant hole in the regime’, and that the rules should be interpreted widely to avoid this gap. In effect, it said that the use of ‘a close company’ in s 685 clearly allowed s 685 to refer to a company other than that referred to in s 684.

The appellants’ arguments.

The appellants said that if there was a hole in the regime, this was a matter for parliament to resolve, which it had done in 2016, when the rules were extended to include the reserves of controlled subsidiaries.

In the appellants’ view, the only transaction in securities was the cancellation of the share of capital of WMGH and there was no connection with any transaction relating to shares or securities of WMF. Their view was that the company whose reserves are referred to in ITA 2007, s 685(4) must be the same company whose assets are distributed or realised as part of the transaction, and that HMRC could not recharacterise matters to make WMF the company referred to in s 685 when its shares were not the subject of the transaction in securities.

Furthermore, WMF was only involved after the transaction in securities and the ‘payment’ of consideration (by crediting their loan accounts), so that WMF’s subsequent involvement was not relevant: ‘HMRC’s approach incorrectly conflated the source of later funding with the nature of the consideration at the time it was received and sought to tax individuals by reference to the dividend capacity of a company in which they held no shares.’

They also pointed out that, as they had no shares in WMF, that company could not pay them a lawful dividend. The cap on counteraction in ITA 2007, s 687(2) supported this, as they could not receive a lawful dividend from WMF at the time the relevant consideration was paid.

Decision

The judge agreed that ITA 2007, s 685(2) and s 685(4) both referred to the same close company but said that this did not have to be the same company as that whose shares were transacted in s 684. The legislation does not require that the distribution, transfer or realisation by a close company in s 685 has to be the transaction in securities referred to in s 684.

In terms of the lawfulness of the dividend, she pointed out that, while the consideration paid to the appellants must represent assets available for distribution by way of dividend, there is no requirement for that dividend to be paid or payable to the person who was party to the transaction in securities referred to in s 684 (following Bamberg), although there has to be a nexus between the two elements, which there was here. Looking at the transaction in the round, ‘the appellants received amounts in connection with distributions paid by WMF to WMGH, and those amounts were (or represented the value of) assets available for distribution by way of dividend by WMF. They were therefore within the definition of relevant consideration. The amounts were received in connection with the transfer of those amounts by WMF to WMGH when WMF loaned those funds to WMGH’.

Nor is there a requirement in the legislation that the amounts available for distribution be available for payment directly to the shareholders of WMGH.

The tribunal found for HMRC on this point, too.

Discussion

It is hard to impugn this part of the judgment. While most observers would have assumed that the transaction in securities mentioned in s 684 must have been a transaction in securities of the company referred to in s 685, this case, and previously Bamberg, makes it clear that this is not so. Arguably, if parliament had intended the two companies to be the same, it would have drafted the legislation so that what is now s 685 referred explicitly to the company whose securities were transacted in s 684.

Were the assessments made in time?

The transactions in securities rules at the time of the transaction (ie before the 2016 changes) stated that an assessment to counteract an income tax advantage could not be raised more than six years after the end of the tax year in which the income tax advantage arose (ITA 2007, s 698(5)). However, I, and other commentators, have always believed that the overall mechanics for assessing the income tax were (and still are) governed by the general rules for assessing tax, in TMA 1970. Crucial to our argument is the fact that, from 1 April 2010, the normal time limit for assessment was reduced to four years after the end of the tax year (TMA 1970, s 34(1)), except in circumstances where there was careless or deliberate behaviour, neither of which is in point in any of the transactions in securities cases that have been considered by the tribunals and courts so far. On that basis, our argument has been that, since HMRC raised income tax assessments in relation to 2015-16 tax planning, well after four years after the end of that tax year, all of these assessments were made out of time.

The assessments in Oscroft were all issued on 21 April 2021, clearly more than four years after the end of the 2015-16 tax year.

HMRC’s position

HMRC’s main argument was that ITA 2007, s 698 gave HMRC the power to raise an assessment for income tax and that power allowed it to do so up to six years after the end of the relevant tax year. This was a freestanding power that was not subject to the general rules of assessment in TMA 1970. This reflects the FTT decision in Osmond & Allen, that the transactions in securities regime ‘is a freestanding anti-avoidance regime that contains the essential elements relating to the criteria for liability, the charging mechanics, and an appeals mechanism’. Indeed, HMRC argued in Oscroft that, while the Osmond & Allen decision on this point did not create a binding precedent (because that part of the decision was not appealed to the Upper Tribunal (UT)), the current FTT should follow the decision as a matter of judicial comity.

It also argued that, since the normal assessment time limit had been six years until 2008, a provision restricting HMRC‘s ability to raise an assessment beyond that period in the transactions in securities rules would have been redundant for all that time, and would have continued to be redundant once the normal assessment time limit had been reduced to four years, if that shorter time limit also applied to the transactions in securities rules. It countered any suggestion that the time limit in the transactions in securities rules might have been in point in cases where TMA 1970 extended the assessment time limits – where incorrect tax returns were submitted – because the transactions in securities rules simply substitute income tax charges for the otherwise correct capital gains tax charge that would have been shown in the tax return.

Finally, ITA 2007, s 698(7) explicitly states that no other part of the Income Tax Acts can limit the powers conferred by the transactions in securities rules and HMRC argued that this means that nothing in TMA 1970 can restrict the six-year rule in ITA 2007, s 698.

The appellants’ arguments

The shareholders argued, first, that this point was wrongly decided in Osmond & Allen and that the current FTT was ‘entitled to depart from that decision’.

They said that ITA 2007, s 698(5) was restrictive, rather than permissive, as it told HMRC what it could not do, rather than allowing it to do something, so it did not displace the normal assessment time limits.

They also argued that the transactions in securities rules were clearly not self-contained, ‘as they lacked essential features relating to, for example, the mechanics of assessment, collection or postponement of tax and enforcement’.

Finally, they said that ITA 2007, s 698(7) ‘was intended to preclude other substantive charging provisions and not procedural rules’, and was not, in any case, part of the Income Tax Acts. (I must admit, I do not understand what was meant by the reference to precluding ‘other substantive charging provisions’.)

Decision

The judge first noted that the decision by the appellants in Osmond & Allen not to appeal this point to the UT did not impose any restrictions on Mr Oscroft and his companions in the current appeal. So the FTT was entitled to make its own decision on this point.

She also noted that HMRC‘s argument that the regime was ‘coherent and self-contained’ was difficult to sustain when its own submissions noted that there were substantial matters not covered by the transactions in securities regime. She highlighted the fact that an assessment is only one of the mechanisms by which an income tax advantage can be counteracted and that the legislation simply requires HMRC ‘to use one of a range of existing powers set out elsewhere in statute in order to make that adjustment’. In other words, ‘the regime gives HMRC the power to use an existing power in circumstances where it would not otherwise be able to do so’. She therefore concluded that ‘the regime is therefore clearly not self-contained’. ‘Accordingly, as s 698 does not create a new assessment power but only creates a new power to use the existing assessment powers, in my view this means that the procedural framework of those existing powers in the provisions of TMA 1970, including the time limits provisions, will apply to the making of an adjustment which is an assessment.’

The tribunal went on to consider whether ITA 2007, s 698(5) extends the normal time limits for assessment and noted, as mentioned above, that the wording is clearly restrictive, not permissive. If parliament had intended this to be permissive for the purposes of the transactions in securities legislation, it would have ensured that the legislation clearly stated this.

She went on to say that ITA 2007, s 698(5) starts with the words ‘nothing in this section authorises …’, which indicates that the time limits for raising assessments are to be found elsewhere in tax statute. In this case, that would be TMA 1970, s 34(1). This was also noted to be consistent with the discussions in Hansard when the transactions in securities legislation was initially introduced (in FA 1960), where reference was made to the fact that the regime was not intended ‘to authorise the making of an assessment after the lapse of the usual six-year time limit’ (quote from Hansard). This made it clear that the ‘usual provisions regarding the time limits within which an assessment could be made were therefore clearly expected to apply where the assessment was being made as an adjustment to counteract a tax advantage.’

The final question in this context is the application of ITA 2007, s 698(7), and whether this provision prevents the operation of the normal time limits for assessment. However, the tribunal said that, while ITA 2007, s 698, as a whole, gives HMRC the power to counteract income tax advantages, and allows that counteraction to include raising an assessment, it does not provide any specific power to do so outside the normal time limits. This reflects the reading of ITA 2007, s 698(5) as being restrictive, rather than permissive. Thus, since there is no power to raise an assessment outside normal time limits, those normal time limits are not a restriction on a power granted by ITA 2007, s 698 and the question of whether TMA 1970 is part of the Income Tax Acts falls away.

In conclusion on this point, therefore, the counteraction provisions in the transactions in securities rules do not stand apart from the general rules of assessment. ITA 2007, s 698(5) is a restriction – albeit one that is redundant – and is not a power to override the normal assessment time limits. Therefore, ITA 2007, s 698(7) has no application to the time limit for raising assessments, HMRC‘s assessments were raised after the time limit had expired and those assessments are, therefore, invalid.

Discussion

This is the part of the decision that is of most interest to me, as I and others (most notably, Ray McCann, who led the transactions in securities team before the inception of the one-stop shop for clearances) have been arguing this point for at least 15 years. It is interesting that, until the recent spate of cases arising from the 2015-16 tax planning, HMRC did not choose to proceed with other cases where we were making this argument, albeit without them explicitly conceding on this point. In the cases of which I have direct experience, HMRC either simply said that it had decided to drop its inquiry or, in one case, that somebody ‘forgot’ to raise the assessment. So this part of the decision comes as a form of exoneration of our view about the time limits for assessment.

There is one oddity in the judgment in that, at [95], the judge says: ‘I consider that it would be absurd to conclude that parliament intended to limit the time in which an assessment could be raised whilst allowing the other potential adjustments to be capable of being made without time limit.’ This seems an odd statement to make, because my view of the legislation is that this is quite clearly what parliament intended when the legislation was first enacted in 1960 (FA 1960, s 28(12)). The six-year limit for raising an assessment only applied to raising an assessment, and not to the other mechanisms that were (and still are) prescribed in the legislation.

As already noted, many of us are aware that there are a lot of cases relating to the 2015-16 tax planning that will be affected by this part of the decision, as in all the cases I am aware of HMRC did not raise the assessments until sometime in tax year 2021-22. It seems highly likely, therefore, that HMRC will appeal this part of the decision because of the sheer number of cases, and amounts of tax, that are potentially at stake. If this decision is upheld, every single one of those cases will fall away.

Conclusions

As I have already said, I think it is extremely likely that HMRC will appeal the decision that the assessments were out of time. It is, of course, impossible to predict what a future tribunal or court will decide on this point, but I feel that the basis of the decision in this case is much more robust than in Osmond & Allen, where the decision was largely predicated on the transactions in securities rules being a self-contained regime, when they are clearly not, at least in the context of the mechanics of assessments, appeals, and so on.

In this case, in common with a number of recent cases (including Osmond & Allen and Hunt), a wide range of technical points have been raised in relation to the transactions in securities regime, and the FTT has found in favour of HMRC on every point. Although the question of whether the reserves of subsidiaries can be taken into account has been dealt with by the change in the legislation in 2016, the decisions on the other technical points suggest that the scope of the transactions in securities regime is wider than many practitioners, myself included, considered to be the case hitherto. It is worth remembering, however, that all these decisions have been made by the FTT, and that they are therefore open to re-argument in other cases, as FTT decisions are only persuasive, they do not set precedent.

Overall, I think it is clear that the recent spate of cases involving the transactions in securities regime is likely to continue, as further cases, largely arising from planning carried out in 2015–16, find their way to the tribunals. However, these might take some time to filter through, as many of them will be stayed behind the Oscroft decision, assuming that it is appealed to the UT, and possibly beyond.

In short, this one is likely to run and run! 

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