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Share disposal scheme subject to CGT

29th Apr 2016
Freelance journalist
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A complicated tax avoidance scheme involving the sale of shares in Anglia Water Group from Scottish to Irish trusts and then to a large investment bank did not work, a tribunal has ruled.

In an appeal to the first tier tribunal (TC05025) the trustees for the three trusts and Sir Fraser Morrison argued that gains on the sale of Scottish Trust shareholdings in AWG (by setting up of five Irish trusts, the exercise of “put options”, the purchase and sale of the shareholdings by the Irish trusts, the replacement of these trustees with the original trustees under the Scottish trusts and the consequent repatriation of these trusts) should have no or minimal capital gains tax.

HMRC argued that under the “Ramsay” principle, the transactions, which ended with a sale of...

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By Satwaki Chanda
03rd May 2016 19:13

For those who are interested, this is an outline of my understanding of how the scheme was intended to work.

1. Scottish trusts sell to Irish trusts - not directly but by way of option arrangements.

2. Because the two sets of trusts were connected, a direct sale would be fixed at market value, bringing in the big CGT charge.

3. So instead, the sale went though by way of options being granted and exercised. At the time of these events, the market value rule would have been disapplied by TCGA 1992 s 144ZA;

4. The result was that the Scottish trusts would have been subject to CGT by reference to the actual price paid - which was minimal since the sale was at an undervalue;

5. But under Irish law, the Irish trusts would have been treated as having acquired the shares at market value;

6. Therefore the subsequent sale of the shares to Merrill Lynch - at market value - would have been tax free.

The case is here if anyone wants to read it all:

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