UK and International Tax news
UT Hears Case Involving Transactions In Securities Rules.
Friday 4th July 2025
The Upper Tribunal has recently heard a case involving a buyback of shares in order to secure the benefit of EIS and CGT relief.
The appeal in Osmond and another v HMRC [2025 UKUT 00183 TCC] related to application of the transactions in securities rules in ITA 2007. In particular whether the Appellants had a main purpose of obtaining the benefit of EIS disposal relief on a buyback of their shares meant that their main purpose or a main purpose was necessarily to obtain “an income tax advantage” within the meaning of s. 687 even given a factual finding that that was not their subjective intention. The EIS relief reduced the Appellants’ CGT liability in respect of the share buyback to nil.
The FTT had previously held that the Appellants’ main purpose of obtaining EIS relief necessarily meant that they had a main purpose of obtaining an income tax advantage. Given this, they were liable to a counteraction notice issued by HMRC in respect of that advantage under s. 684 ITA 2007.
The Appellants’ key ground of appeal was that the FTT erred in law by agreeing with HMRC’s primary submission that, given the taxpayers stated purpose of securing EIS disposal relief, it necessarily followed that they had a main purpose of obtaining an income tax advantage. This arose from the definition of income tax advantage in s.687.”
HMRC confirmed in their response to the notice of appeal that they did not seek to challenge the FTT’s decision on HMRC’s secondary submission that, setting aside the conclusion on HMRC’s primary submission, the taxpayers did not have a main purpose of obtaining an income tax advantage as a matter of fact and evidence.
The UT considered that the FTT’s conclusion that “as a matter of remorseless statutory logic” the taxpayers’ purpose of crystallising the EIS disposal relief also necessarily constituted a main purpose of obtaining an income tax advantage was an error of law.
The UT was “strengthened in this conclusion” by consideration of the statutory background to the introduction of s. 684 and s. 687 ITA 2007 in 2010. The UT pointed out that nowhere in the 2009 Consultation Document was there any evidence of an intention to amend the TIS legislation so that a main purpose of obtaining a CGT exemption should necessarily constitute a purpose of obtaining an income tax advantage. The UT accepted the Appellants submission that the income tax advantage was the effect rather than the purpose of them entering into the share backs and allowed the appeal.
This perhaps a surprising decision and one which HMRC may well appeal,
If you would like more detail on this decision, please contact Keith Rushen on 0207 486 2378.
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