Delinian Limited v The Commissioners for HMRC
[2023] EWCA Civ 1281
Olivia Wilkinson & Ors v The Commissioners for HMRC
4 August 2023
[2023] UKFTT 695 (TC)
First-tier Tribunal
A family sold their company. They structured the sale to save on taxes, but a judge ruled the main goal was selling the company, not just tax avoidance. So they won and didn't have to pay extra tax.
Key Facts
- •Shareholders (Mr & Mrs Wilkinson, appellants 2 & 5) in Paragon Automotive Limited (P Ltd) transferred shares to their daughters (appellants 1, 3, & 4) before a third-party sale.
- •Daughters exchanged P Ltd shares for loan notes and shares in the buyer, TF1 Ltd, a section 135 'exchange'.
- •Daughters held assets for one year to qualify for entrepreneurs' relief (ER).
- •HMRC raised discovery assessments, arguing s135 didn't apply due to s137 (CGT avoidance scheme).
- •The deal involved £60m cash, £40m deferred payment loan notes, and a potential £30m earn-out.
Legal Principles
Did the exchange form part of arrangements with a main purpose of CGT avoidance (s137 TCGA 1992)?
Taxation of Chargeable Gains Act 1992, section 137
If s137 applies, s135 (exchange treatment) is prevented.
Taxation of Chargeable Gains Act 1992, section 137
Definition of 'scheme' and 'arrangement' (plan of action/structure for a purpose).
Snell v HMRC [2007] STC 1279
S137 is an 'all-or-nothing' provision applying to all shareholders (except unconnected ones holding 5% or less).
Coll v HMRC [2010] STC 1849
Determining the purpose of a scheme involves examining the purpose of the whole arrangement, not just individual steps.
Euromoney Institutional Investor plc v HMRC [2022] STC 1457
It is not necessary for arrangements to include the entirety of an exchange for s137 to apply.
Euromoney Institutional Investor plc v HMRC [2022] STC 1457
Outcomes
Appeals allowed.
CGT avoidance was not the main purpose of the overall deal to sell P Ltd. While the Wilkinsons' tax planning influenced the deal, the primary objective was the sale itself for £130 million. The significant minority shareholders had no involvement in the tax planning, and the tax savings were relatively small compared to the overall deal value.