The chargeable gain accruing to a taxpayer upon his disposal of certain shares qualified for retirement relief under TCGA 1992, s. 163.

Facts

The taxpayer appealed against a closure notice dated 20 May 2004 and issued under TMA 1970, s. 28A following the completion of an enquiry under s. 9A of that Act into his self-assessment return for the year ended 5 April 2000. The effect of the closure notice was to incorporate a chargeable gain of £85,260 on the disposal by the taxpayer of 20 £1 ordinary shares (‘the shares’) in a company to the trustees of the company's employee benefit trust (EBT), giving rise to an additional liability to capital gains tax (CGT) in the sum of £32,340.

The taxpayer had been appointed a director of the company in May 1992. In August 1992 he had entered into an agreement with the other directors of the company to purchase shares for £40,000. At a board meeting in June 1997 it had been agreed that the company would purchase his shares and that taxpayer would resign as a director with effect from 1 July 1997 and as an employee with effect from 31 August 1997. In August 1999, a payment of £139,000 was made by the EBT to the taxpayer.

It was not in dispute that if, as the taxpayer contended, the disposal occurred in 1997, then retirement relief was available and no additional tax was due. The taxpayer accepted, however, that if the date of the disposal was in 1999 then no retirement relief was available and the amended return correctly showed a total of £29,621.94 tax due.

During the course of the hearing the question arose as to whether the matter was being dealt with in procedural terms as an English appeal or as a Scots appeal.

Issue

Whether the gain qualified for retirement relief under s. 163 of TCGA 1992.

Decision

The special commissioner (Julian Ghosh) (allowing the appeal) found that the original agreement reached between the taxpayer and the company in June 1997 was neither novated nor rescinded and replaced, either by an exchange of letters in February and March 1999 or by the conduct of the parties subsequent to that exchange. The original contract continued to subsist and it was in pursuance of that original contract that the shares were eventually disposed of. The contract was made in 1997 and, accordingly, TCGA 1992, s. 28 dictated that the disposal had to be treated for the purposes of CGT as having occurred in that year. It followed, therefore, that the taxpayer was entitled to claim retirement relief against the chargeable gain that accrued to him upon his disposal of the shares in 1997.

The proceedings should properly be treated as a Scots appeal. The parties agreed that any appeal would lie to the Inner House of the Court of Session and not to the English High Court, albeit that the relevant contracts were governed by English law. Both parties agreed that it followed that any appeal under TMA 1970, s. 56A would lie to the Court of Session (sitting as the Court of Exchequer in Scotland) rather than to the High Court of Justice of England and Wales. The submissions made by the parties on the substantive law of England and Wales did not reveal any material disputes as to the content of that substantive law. All that was in dispute was how the agreed principles should be applied to the facts. The most appropriate and convenient course was to treat the submissions in relation to the law of England and Wales as admissible evidence of the law of that jurisdiction analogous to an agreed statement of facts.

(2008) Sp C 684.
Decision released 19 May 2008.