Redevco Properties UK 1 Limited v The Commissioners for HMRC
[2023] UKFTT 655 (TC)
The Trustees of the Panico Panayi Accumulation and Maintenance Settlements Numbers 1 to 4 & Anor v The Commissioners for HMRC
8 October 2024
[2024] UKUT 319 (TCC)
Upper Tribunal
The UK government's tax on people moving their money out of the UK was challenged in court. The court decided the tax itself was fine, but the rule forcing immediate payment was unfair. They fixed the problem by allowing people to pay in installments over five years, without changing the main law.
Key Facts
- •Two appeals concerning the "exit tax" on deemed disposal of assets when trustees of a settlement or a company cease to be UK tax residents and become resident in another EU member state.
- •First Appellant: Trustees of The Panico Panayi Accumulation and Maintenance Settlements Numbers 1 to 4 (ceased UK residence in 2004, became resident in Cyprus).
- •Second Appellant: Redevco Properties UK1 Limited (moved place of effective management to the Netherlands in 2008).
- •HMRC issued closure notices for capital gains tax (Trustees) and corporation tax (Redevco), based on deemed disposal under ss80 and 185 TCGA and para 10A, Sch 9, FA 96.
- •Appeals challenged compatibility of exit tax with EU freedoms of establishment and free movement of capital.
- •FTT in both cases found a conforming interpretation existed, avoiding disapplication of the legislation.
- •Appeals to the Upper Tribunal (UT) questioned the FTT's conforming interpretations.
Legal Principles
Imposition of exit tax may restrict freedom of establishment or free movement of capital, but can be justified to preserve the origin state's right to tax activities within its territory.
CJEU case law (National Grid Indus BV, N v Inspecteur)
Exit taxes are disproportionate and unlawful if they don't allow deferral of payment.
CJEU case law (National Grid Indus, Commission v Portugal)
Deferral options (e.g., instalments over 5-10 years) can be proportionate and compatible with EU law.
CJEU case law (DMC, Verder LabTec, Wächtler)
A trust can benefit from EU freedoms, and immediate exit tax on unrealized gains is a disproportionate interference with freedom of establishment if no deferral option exists.
Panayi CJEU
National courts must interpret domestic law in conformity with EU law, disapplying incompatible provisions if necessary.
CJEU case law (Marleasing, Joachim Pöpperl)
Conforming interpretation must go with the grain of the legislation and not fundamentally alter its features; it can be retrospective but must not breach legal certainty.
Vodafone 2, FII SC1, Ghaidan, Fleming
Outcomes
The UT found a conforming interpretation of ss59B and 59D TMA exists.
The breach of EU law was not the exit tax itself but the lack of deferral. A conforming interpretation allowing a five-year installment plan remedies this without fundamentally changing the legislation.
The UT set aside the FTT's decisions regarding interest, as this went beyond the necessary remedy.
The CJEU did not find interest payments to be an infringement of freedom of establishment.
The UT remade the FTT decisions, upholding the existence of a conforming interpretation with a five-year installment payment plan for exit taxes.
This interpretation addresses the EU law violation, respects parliamentary intent, and avoids unnecessary policy choices.
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