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HMRC defeats tax QC's own scheme at tribunal

15th Apr 2013
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A specialist tax barrister recently lost a first tier tribunal appeal against HMRC’s decision not to allow him to claim tax relief on a £475,000 loss on an avoidance scheme of his own devising.

Rex Bretten QC, who retired around 18 months ago from Tax Chambers at 15 Old Square, was the central figure in a scheme that involved two trusts in which he invested £500,000 in loans raised against what are known as relevant discounted securities (RDS). The arrangement created a £475,000 loss against which he tried to claim £190,000 relief.

While the loan arrangements were fairly simple, the interpretation of their legality was much less straightforward. In a what might be termed a 2-1 points decision in the case of George Rex Bretton QC v HMRC [2013] UKFTT 189 (TC), tribunal judge Barbara Mosedale ruled in March that the transactions were caught by anti-avoidance provisions (paragraph 9A) in schedule 13 of the Finance Act 1996 that applied at the time of Bretten’s initial appeal.

Bretten represented himself at the tribunal hearing in January. The case was given an added twist by Public Accounts Committee chair Margaret Hodge, who named Bretten in a parliamentary hearing in December as one of a handful of tax QCs who “prostitute themselves” to schemes designed to deliberately create gross tax relief for investors.

In February 2003, Bretten became joint trustee of a pair of trusts set up by Oakwood Consultants holding six loan notes with a total value of at £500,000.

At the time of the transactions, the judge noted Bretten was a “name” at Lloyds, and potentially at risk of large future liabilities. She accepted that his motivation was creditor-avoidance (whether or not it succeeded) rather than tax avoidance.

The money handed over to the accountants was effectively secured by a call option granted to one of the trusts, which reduced Bretten’s risk to the amount specified in the arrangement for the loan’s market value after an initial cooling off period (£25,000).

Bretten did not make an initial claim on his 2002-03 self assessment return, but shortly after the tribunal decision in Campbell v IRC [2004] UK SPC000421, in which the taxpaper made a successful appeal concerning a similar arrangement, he amended his return to claim the loss relief.

HMRC argued that because Bretten was both connected with the trusts, and because of the call option that would switch the obligation from Oakwood Consultants to one of the trusts, the accountants were only inserted into the transaction for tax avoidance purposes, and to ensure the issue was by a company.

While many other factors were considered, the case effectively turned on the interpretations of paragraph 9A. Bretten argued that the term “issuer” in the schedule could not refer to any one other than the actual issuer.

“I am unable to agree with this,” the judge concluded.

“I find OCL’s grant of the call option and its issue of the loan notes was done solely to facilitate Mr Bretten’s tax avoidance scheme.”

Having been lambasted by the PAC in February for having rings run around it by tax scheme operators, HMRC issued a statement on Friday 12 April explaining that although Bretten’s structure was unique, the tribunal ruling could apply to a number of other cases involving further tax of around £2m.

“This is another important success for HMRC at tribunal which may well have repercussions for other similar tax avoidance schemes,” said HMRC’s director general for business tax, Jim Harra.

“Some people make the mistake of thinking that a complex avoidance scheme backed by a senior lawyer is safe from HMRC’s challenge. That would be a big mistake, as this outcome proves. People should always ask themselves whether a proposed scheme is too good to be true.”

Replies (4)

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By ShirleyM
16th Apr 2013 09:01

Well done, HMRC :)

Any penalties? Has he lost anything really?. He has managed to illegally hold onto the tax for 10 years, and it has cost him little in the way of defence costs.

What cost to the country, though? Until there is a positive deterrent the risk still seem to be worth taking as the potential gains are huge, but as in this case, the potential losses are minimal.

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By frustratedwithhmrc
16th Apr 2013 10:18

Oh, the irony...

Just goes to show the truth of the old adage "A man who is his own lawyer has a fool for a client"

Well done HMRC!

My only observation is that this tax cheats claim relates to 2003. Why does it take 10-years to find a man guilty for perpetrating such a grotesque fraud against the public treasury?

I realise that interest and penalties will mitigate this, but justice deferred is justice denied.

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By ireallyshouldknowthisbut
16th Apr 2013 15:15


I wonder if this is the same chap who is always quoted when tax scheme promoters tell you the tax position has been agreed by a QC!

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Replying to andy.partridge:
By GuestXXX
17th Mar 2015 15:51


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