Taxpayer’s advantage

The taxpayer was the director and sole shareholder of a company that operated car dealerships.

In December 2003 he established a qualifying employee share ownership trust (QUEST) on the advice of his accountant. He also sold 18.4% of the share capital to the QUEST for £633 000.

HMRC argued that the taxpayer had received a tax advantage by the sale of shares to the QUEST and issued an assessment under TA 1988 s 703(3) as a countermeasure.

The taxpayer’s appeal was dismissed by the First-tier Tribunal so he appealed to the Upper Tribunal (Tax and Chancery Chamber).

Mr Justice Warren in the Upper Tribunal said that a tax advantage could be obtained as a result of a transaction in securities regardless of whether another operation was a necessary ingredient and it had not taken place in consequence of the transaction...