Sept 16
In July 2015 three beneficiaries were each given an interest in possession in a settlement in their own names, in the whole of the settled property. In August 2015, the settlor gave ordinary shares in a company to each of the trusts. The beneficiaries had, since 2011, held shares with full voting rights in the company, which was therefore a “personal company” for each of them under the Taxation of Chargeable Gains Act 1992. In December 2015 the trust disposed of the shares, and went on to claim entrepreneurs’ relief under Part 5 of the 1992 Act. By section 169J of the 1992 Act relief was available if there was a disposal of trust business assets providing the relevant condition in subsection (4) was satisfied, namely that throughout a period of one year ending not earlier than three years before the date of the disposal, the company was the qualifying beneficiary’s personal company as well as a trading company, and the qualifying beneficiary was an officer or employee of the company. A “qualifying beneficiary” was defined by section 169J(3) as an individual with an interest in possession under the trust. The revenue refused the claims for relief, contending that section 169J(4) required the beneficiary under the settlements in question to have had an interest in possession (and therefore have been a qualifying beneficiary) throughout the period of one year. The trust appealed to the First-tier Tribunal, which held that section 169J(4) did not require a qualifying beneficiary to hold their interest in the shares disposed of for the one-year period, rather it was the status of the qualifying beneficiary’s shareholding which constituted the company as a personal company, and its status as a trading company, that had to exist in the one-year period during the three-year window. The Upper Tribunal allowed an appeal by the revenue, concluding that section 169(J) of the 1992 Act required a beneficiary to have been a qualifying beneficiary throughout the period of one year ending not earlier than three years before the disposal.
On the trusts’ appeal—
Held, appeal allowed. The clear and natural meaning of section 169JA of the Taxation of Chargeable Gains Act 1992, as indicated by the logical structure and drafting technique of that section, was that the individual who was a qualifying beneficiary at the date of disposal, by virtue of satisfying the definition in section 169J(3), did not need to also satisfy the requirements of that definition throughout the period of one year during which the “relevant condition” in subsection (4) or (5) of section 169J had to be met if there was to be a disposal of trust business assets within the meaning of the section. It would be wholly foreign to the carefully delineated statutory scheme if the reader had to extract from subsections (4) and (5) a further condition, nowhere expressly articulated and conspicuously absent from subsection (3) itself, to the effect that the qualifying beneficiary’s interest in possession must subsist not only on the date of disposal, but also throughout the one-year period when the “relevant condition” was met. If that had been the statutory intention, the additional requirement would have been expressly included in the definition of a qualifying beneficiary. Accordingly, Upper Tribunal erred in concluding as it did and the First-tier tribunal decision would be restored.(paras 44–49, 62–63, 64, 65).
Akash Nawbatt KC and Michael Ripley (instructed by Solicitor, Revenue and Customs) for the revenue.
Michael Firth (directly instructed) for the trustees and the beneficiaries.