Case Law Article Sheds Light on Tax Avoidance Schemes & Ramsay Principle Application in UK Legislation

Citation: [2024] EWCA Civ 180
Judgment on


The case of Sharon Clipperton & Anor v The Commissioners for HMRC delves into the realm of tax law, particularly addressing the intricacies of marketed tax avoidance schemes and their implications under UK tax legislation. This case provides guidance on the application of the Ramsay principle and the treatment of income under the settlements code, specifically in the context of company distributions and tax liabilities of shareholders.

Key Facts

Sharon Clipperton and Steven Lloyd, the appellants, held equal shares in Winn & Co. (Yorkshire) Ltd and sought to extract funds from the company without incurring income tax by employing a marketed tax avoidance scheme known as Aikido. The execution of this scheme involved various steps and led to the creation of an additional company and a trust arrangement. However, the HMRC challenged the tax returns filed, asserting that the funds received by the appellants as a result of the scheme were indeed subject to income tax.

The court employed several legal principles in arriving at its decision:

  1. Ramsay Principle: This case reaffirmed the Ramsay principle, which dictates that in tax avoidance scenarios, one must consider the scheme as a whole and not in isolated steps. It suggests that transactions inserted for tax avoidance can be disregarded when they do not align with the statutory provision’s purpose.

  2. Settlements Code: The court also examined the application of the settlements code within the Income Tax (Trading and Other Income) Act 2005. The settlements code attributes the income from property in which the settlor has an interest as the income of the settlor alone.

  3. Interpretation of Legislation: A key theme was the interpretation of the statutory language, ensuring that the resulting understanding aligns with the legislative purpose. In particular, the court considered the definition of “distribution” and “settlement” and their relevance to the case’s facts.


The court concluded:

  1. Distribution in Respect of Shares: The £196,930 distributed to the appellants was indeed a distribution by Winn Yorkshire in respect of shares held by the appellants, calling into action ss. 383 to 385 ITTOIA. The Ramsay principle was applied to determine that the series of steps culminating in the appellants receiving funds was effectively a distribution by Winn Yorkshire.

  2. Non-application of the Settlements Code: The settlements code did not apply to the Winn Yorkshire distribution as the income distributed did not arise from property in which Winn Yorkshire, the settlor, retained interest. Thus, the income was taxable in the hands of the appellants.

  3. No Element of Bounty: The court did not address the “element of bounty” aspect within the settlements code, as the settlements code did not apply.

  4. Non-Double Taxation: The court did not touch upon the issue of potential double taxation where two settlors are deemed to have provided the same property for the purpose of a settlement.


The decision in Sharon Clipperton & Anor v The Commissioners for HMRC serves as a powerful elucidation of the judicial approach to tax avoidance schemes. It demonstrates the courts’ commitment to a purposive reading of tax legislation, as well as the necessity to consider the legality of intricate arrangements designed to sidestep tax liabilities. Notably, while the settlements code can dictate the tax treatment of incomes arising from certain settlements, where the settlor retains an interest, this is not an all-encompassing shield against tax in the context of elaborate avoidance schemes. This case underpins the principle that artificial intermediary steps inserted for the sole purpose of avoiding tax cannot distort the tax consequences of the overall arrangement envisaged by Parliament.