Court of Appeal Upholds Taxability of Partner Incentivization Plan Awards in HMRC v Bluecrest Capital Management Case

Citation: [2023] EWCA Civ 1481
Judgment on


The case of The Commissioners For HMRC v Bluecrest Capital Management LP & Ors presented the Court of Appeal with a multifaceted legal challenge centered around the taxation of certain financial arrangements known as a Partner Incentivization Plan (PIP). Developed by BlueCrest Capital Management, the PIP aimed to incentivize partners to remain with the firm, mitigate risks, and align interests with investors. The legal dispute arose when the UK’s tax authority (HMRC) sought to tackle the perceived tax avoidance aspect of the PIP.

Key Facts

The underpinning commercial transaction in question was the allocation of profits from the partnership business to a corporate partner, which in turn, after deduction of its expected tax liabilities and expenses, would invest these profits back into the partnership in the form of special capital. The individual partners could then receive allocations of this special capital based on certain conditions.

HMRC’s primary case contended that the allocation of profits to the corporate partner should be seen as a diversion of individual partners’ income, thereby challenging the arrangement’s tax efficiency. Their secondary case hinged on the treatment of PIP awards either under the miscellaneous income rules (section 687 of ITTOIA 2005) or the “Sale of Occupational Income” provisions (Chapter 4 of Part 13 of the ITA 2007), should the primary case fail.

The Court of Appeal meticulously dissected the legal principles around partnership taxation, distinguishing between revenue and capital receipts, and analyzing the taxability of the PIP awards. The judgment emphasized adherence to the statutory scheme, determining that the profit-sharing arrangements should reflect actual partnerships agreements. This is in line with the fundamental principles of partnership tax transparency as per sections 848 and 863 of ITTOIA 2005, and section 1262 of CTA 2009, which require allocating partnership profits for tax purposes in line with the partnership’s profit-sharing arrangements.

The Court further explored the application of the Ramsay doctrine, delineating between genuine commercial arrangements and tax avoidance schemes lacking commercial substance. Moreover, it dissected the concept of “source” of income, drawing parallels with established case law, particularly Cunard’s Trustees and Spritebeam Ltd.


The appeal court’s judgment produced several crucial outcomes:

  1. HMRC’s primary case was dismissed. The court ruled that the corporate partner’s profit allocation could not be simultaneously treated as profit allocation to individual partners when the PIP had commercial substance.

  2. On the secondary case pertaining to miscellaneous income, the court held the final PIP awards were taxable as income under section 687 of ITTOIA 2005. The court identified the source of these awards as the decision of the Corporate Partner, echoing principles of discretionary payments established in Spritebeam Ltd.

  3. The court, however, refrained from ruling on the “Sale of Occupational Income” issue, leaving HMRC’s alternative argument under Chapter 4 of Part 13 of ITA 2007 undecided.


The case elucidates critical aspects of partnership taxation laws and scrutinizes the applicability of anti-avoidance principles. Central to the judgment is a clear distinction between arrangements that are genuinely commercial (and thus legal) and those that are contrived for tax avoidance purposes. By rejecting HMRC’s primary case and upholding the taxability of the PIP awards under the miscellaneous income charge, the court maintained the integrity of the UK’s tax system without impeding legitimate business transactions. For legal professionals, the case affirms the importance of aligning tax arrangements with substantive economic reality and illustrates the fine balance courts must maintain between curbing tax avoidance and respecting genuine commercial practices.

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