Disputed proceeds for capital gains tax

The taxpayers sold their business KCPL in which they were each 50% shareholders. The sale and purchase agreement stated that the sum for the 100% share ownership was £8m. On the day of the sale the buyers’ solicitors transferred £1.1m to Allied Irish Bank to clear a loan owed by KCPL.

In their tax returns the taxpayers included gains as 50% each of £6.9m. HMRC enquired into their returns and concluded the consideration should be £8m.

The taxpayers appealed. They said the buyer paid £6.9m for the shares and £1.1 to repay the bank debt. They never received £8m – the amount of the bank debt was not intended to be treated as consideration for the shares.

The First-tier Tribunal looked at the sale and purchase agreement which stated the consideration would be £8m. The judge did not dispute that the what happened in reality was that...