True acquisition cost

NT Advisors devised a tax avoidance scheme in 2005/06. It involved the acquisition of options to acquire shares the exercise of the options and payment and the sale of the shares. The claimed outcome was that the sale of the shares resulted in a capital loss that could be turned into an income loss under TA 1988 s 574 for use against other income.

The taxpayers took part in the scheme. In round one M exercised an option to acquire shares in company S for a nominal price of £6m. The sum was payable to a discretionary trust of which M was the principal beneficiary and whose assets consisted mainly of that debt. The economic effect of the scheme was to transfer £6m of M’s assets into that discretionary trust.

He sold the shares for £552 and claimed for 2005/06 an offset of the losses...