Chris Hoyle v The Commissioners for HMRC
[2024] UKFTT 1060 (TC)
Rupert Grint v The Commissioners for HMRC
25 November 2024
[2024] UKFTT 956 (TC)
First-tier Tribunal
An actor transferred his business to his own company to potentially reduce his tax. The tax court decided this was tax avoidance and the actor still owed income tax on a large sum of money, even though it was initially structured as a capital gain. The court allowed the tax authority to change its mind slightly about the specific law that applied, as the overall result remained the same.
Key Facts
- •Mr. Rupert Grint, an actor, transferred his business assets (including acting rights and goodwill) to Clay 10 Limited, a company he solely owned.
- •The total consideration was £8,586,814.10, with £4,086,814 attributed to income and £4,500,000 to goodwill.
- •Mr. Grint treated the £4,500,000 as a capital gain, claiming entrepreneurs' relief.
- •HMRC argued the £4,500,000 should be treated as income under the Sales of Occupation Income provisions (ss 773-789, Income Tax Act 2007).
- •The dispute centered on whether the transaction's main object was tax avoidance and which specific section (778 or 779) applied.
Legal Principles
The 'avoidance test' requires that the main object, or one of the main objects, of the transactions or arrangements is the avoidance or reduction of liability to income tax.
Income Tax Act 2007, s 773(2)(b)
'Main object' refers to an important object.
Travel Document Service v RCC [2018] STC 723 and Lloyds TSB Equipment Leasing (No 1) Limited v HMRC [2014] STC 2770
In determining the object of a transaction, the subjective intentions of relevant parties, including directors and shareholders, must be considered.
Brebner v IRC [1967] 2 AC 18; HFFX LLP & Ors [2021] UKFTT 36 (TC)
Tax avoidance is distinguished from tax mitigation. Avoidance involves creating artificial structures to obtain tax benefits without incurring the intended economic consequences; mitigation involves legally minimizing tax liability through accepted means.
CIR v Challenge Corporation Ltd [1987] UKPC 45; Ensign Tankers (Leasing) Ltd v Stokes [1992] 1 AC 655; CIR v Willoughby (1997) 70 TC 57
A closure notice's scope is defined by its conclusions and amendments, but the tribunal can consider alternative legal arguments to support the adjustment if it is fair and in the public interest.
Tower M Cashback LLP 1 v RCC [2011] STC 1143; Investec Asset Finance Plc v RCC [2020] EWCA Civ 579; Fidex Ltd v HM Revenue & Customs [2016] EWCA Civ 385
A party may be estopped from relying on a contractual provision if their conduct leads the other party to rely on a variation, even if informal.
Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24
Outcomes
The appeal was dismissed.
The tribunal found that one of the main objects of the transactions was to avoid or reduce Mr. Grint's income tax liability, satisfying the avoidance test under s 773(2)(b). Section 779, not 778, applied because the right to the £4.5 million debt was considered property derived from Mr. Grint's activities, and this right was realised in the 2011/12 tax year when the funds became available to him. The closure notice was valid even if s779 was applied instead of s778.