Court of Appeal Clarifies Tax Avoidance Provisions in Delinian Limited v The Commissioners for HMRC

Citation: [2023] EWCA Civ 1281
Judgment on


The case of Delinian Limited v The Commissioners for HMRC before the Court of Appeal (Civil Division) presents a thorough examination of the capital gains tax and corporation tax provisions, specifically centred on sections 135 to 137 of the Taxation of Chargeable Gains Act 1992 (TCGA). The core issue revolves around the correctness of a share exchange to defer tax liability and whether this exchange formed part of a scheme with tax avoidance as a main purpose.

Key Facts

Euromoney, the respondent, restructured an agreement to exchange its shares in Capital Data Limited for ordinary and redeemable preference shares in Diamond Topco Limited, as opposed to cash and ordinary shares. This was done to utilize the substantial shareholdings exemption under the TCGA, aiming to avoid tax liability when redeeming the preference shares. HMRC challenged this arrangement, asserting a tax avoidance purpose, leading to litigation that reached the Court of Appeal after the Upper Tribunal dismissed the HMRC’s previous appeal.

The legal analysis dwelled upon the interpretation of section 137 TCGA, which sets out conditions under which share exchange and deferment of tax are permissible. The case hinged on whether the entire exchange of shares, as part of an agreement, could form part of a scheme primarily aimed at tax avoidance. The case brought attention to the distinction between the ‘exchange’ as a transaction and a ‘scheme or arrangements’ as a construct with an intended purpose.

The judgment articulated necessary inquiries under section 137(1):

  1. Whether the exchange itself is done for bona fide commercial reasons.
  2. Whether the exchange forms part of a wider scheme or arrangements with a main purpose being tax avoidance.

Importantly, the court clarified that the evaluation of a scheme or arrangements requires considering the whole scheme undertaken by the taxpayer, not selective parts. This holistic approach aligns with the precedents set in Snell v. HMRC and Coll v. HMRC, with observations from IRC v. Brebner and IRC v. Willoughby providing additional understanding of what constitutes ‘tax avoidance’ in this legislative context.


The court dismissed HMRC’s appeal, upholding the decisions of the First-tier Tribunal (FTT) and the Upper Tribunal (UT). It was determined that the FTT correctly identified the entire scheme or arrangements and concluded that the tax avoidance was neither the sole nor a main purpose of the arrangements made by Euromoney.

Euromoney’s cross-appeal contained in their Respondent’s Notice was also dismissed, with the court finding that the engagement with the substantial shareholding exemption, aiming to avoid tax that would normally be deferred, indeed constituted tax avoidance within the meaning of section 137(1).


The Court of Appeal’s decision in Delinian Limited v The Commissioners for HMRC solidifies the statutory interpretation of Section 137(1) TCGA. It clarified that to determine if the exchange forms part of a ‘scheme or arrangements’ with a tax avoidance purpose, it is imperative to assess the totality of the taxpayer’s scheme and not isolated segments of the transaction. The judgment affirms the necessity to consider the commercial substance and intention behind share exchanges to ensure compliance with the TCGA’s provisions.

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