Income tax

Actor left with £1.8m tax bill

The First-tier Tribunal (FTT) has found that an arrangement was ineffective where rights to film income was put into a company and some of the money received from this was treated as capital due to it being a disposal of the rights. This amount was taxable on the self-employed actor as income.

The taxpayer concluded an agreement with a company, of which he was the sole shareholder, to provide his acting services through it. Rights he held at that time were transferred to the company, such as rights to payment for his acting in films that had already been filmed. The consideration for these, more than £8.5m, was left as a debt due from the company to the taxpayer. In that tax year he declared £4m of the sum as income, being consideration for income from existing contracts, and the other £4.5m, being the consideration for rights, records and goodwill, as a capital gain subject to entrepreneurs’ relief (now business asset disposal relief). He later withdrew sums from the company as tax-free debt repayments. HMRC investigated on the basis that the £4.5m was income rather than a capital disposal.

The FTT heard evidence on how the arrangements had come about and the intentions behind them. It found that one of the main objects of the arrangements was the reduction of tax, although it acknowledged the limited involvement that the taxpayer himself chose to take in his financial affairs. It also found that the £4.5m should be taxed as income, although under a different provision to that for which HMRC had argued. It was a capital amount the value of which was derived from the work of the taxpayer, and therefore the taxpayer’s appeal was dismissed.

Grint v HMRC [2024] UKFTT 956 (TC)

From Tax Update December 2024, published by Evelyn Partners LLP

Property tax

Upper Tribunal dismisses appeal on SDLT group relief main purpose test

The Upper Tribunal (UT) has dismissed an appeal by a taxpayer in the stamp duty land tax (SDLT) case of The Tower One St George Wharf Limited. The case relates to a series of transactions for the transfer of the freehold of a residential property from one group company to another. Although there were commercial reasons for the transfer to a separate legal entity, the group also (incorrectly) understood that a corporation tax advantage, namely a tax-free step-up in the building’s base cost, could be obtained if the transfer was implemented in a certain way. This included additional steps of granting a lease to a third group company, and the subsequent intragroup transfer of that lease. Group relief from SDLT (under Schedule 7 of Finance Act 2003 (FA 2003)) on the lease transfer was claimed, but HMRC refused on the basis that a restriction in Paragraph 2(4A) applied as the transfer formed “part of arrangements of which the main purpose, or one of the main purposes, is the avoidance of liability to tax”.

The UT held that the fact that the intended corporation tax result did not ultimately arise did not prevent the arrangements from being regarded as having a tax avoidance purpose. Nor was it relevant that any (intended) step-up in base cost would not have resulted in an immediate saving of corporation tax. Applying recent case law on the similarly-worded corporation tax loan relationships ‘unallowable purpose rule’ (s441, CTA 2009), the Upper Tribunal agreed that the main purpose test was met and so SDLT was payable.

The UT also agreed with the First-tier Tribunal that the transfer did not qualify for a statutory exception from an SDLT deemed market value rule for transactions with a connected company (s53, FA 2003). This meant that the SDLT charge arising was based on the market value of the lease (approximately £200m) and not the actual consideration paid (approximately £30m).

The Tower One St George Wharf Limited v HMRC [2024] UKUT 373 (TCC)

From the Business Tax Briefing dated 22 November 2024, published by Deloitte

Property residential for LBTT

Revenue Scotland (RS) successfully argued that an historic property was residential. Although it had been used as offices for a time, it was purchased on the basis that that use would change and it was suitable for use as a dwelling.

The taxpayers purchased a property in Scotland, paying land and buildings transaction tax (LBTT) at non-residential rates. This was a listed building built in 1622 consisting of a main home and annexe, set in 10.8 acres. It had been left vacant, fallen into disrepair, then been converted into offices. In 2020, planning permission for change of use from offices to a home was granted, then it was sold to the taxpayers. They obtained consent for remodelling and lived there as a home.

The taxpayers argued that this was a non-residential property on purchase, but the First-tier Tribunal for Scotland found for RS that it was suitable for use as a dwelling. It had been used as a home for more than 350 years, compared to a few decades as offices, and on purchase it had a kitchen, bathroom facilities and was liveable, despite needing extensive work.

Ball & Anor v RS [2024] FTSTC 6

From Tax Update December 2024, published by Evelyn Partners LLP