Avoidance was not a main purpose

The taxpayer owned shares in a company which it sold to another unconnected company DTL. In consideration it received ordinary shares and preference shares in DTL. The intention was to treat the entire transaction as a share for share exchange under TCGA 1992 s 135. In this way the capital gain on the disposal of shares would be rolled over into the ordinary and preference shares and after a year when the preference shares were sold or redeemed the disposal would qualify for substantial shareholding exemption (SSE).

HMRC considered the main purpose or one of the main purposes of the arrangements was to avoid tax (TCGA 1992 s 137(1)) and raised an assessment to corporation tax.

The First-tier Tribunal allowed the taxpayer’s appeal saying the avoidance of tax was not a main purpose. The Upper Tribunal upheld the First-tier Tribunal’s decision. HMRC appealed.

The...