CG52632 - Share exchange: anti-avoidance: clearance procedure: whether avoidance is a main purpose

TCGA92/S138

The anti-avoidance provisions of TCGA92/S137 apply where an exchange or scheme of reconstruction is undertaken as part of a scheme of arrangements and the main purpose, or one of the main purposes, of the scheme or arrangements is avoidance of a capital gains charge.

Where there is any element of avoidance in such a scheme or arrangement then the question of whether that amounts to a main purpose is one of fact and degree.  That is not always a question that can be answered through the clearance process.  HMRC will not provide clearance under TCGA92/S138 where a degree of avoidance of a charge is disclosed in or is apparent from an application and where based on the information provided HMRC cannot be satisfied that avoidance is not a main purpose or one of the main purposes.  If the transaction proceeds, then HMRC will assess the risk and enquire if appropriate and any dispute can be resolved through the appeal process.

The Court of Appeal’s decision in Euromoney* confirmed that, where the scheme or arrangements lead to the non-payment of tax that would otherwise be due, rather than deferral of tax that will eventually be charged, that is tax avoidance for the purposes of the share exchange and company reconstruction rules.

*Delinian Ltd (Formerly Euromoney Institutional Investor PLC) v Commissioners for His Majesty's Revenue and Customs [2023] EWCA Civ 1281.  See paragraphs 52-54 dismissing the company’s cross-appeal.