No liability on sale of capital accounts

The taxpayers were members of limited liability partnerships (LLPs) that acquired and leased film rights. They funded 80% of their capital contributions to the LLPs though bank loans. Each LLP claimed film tax credits on the basis that it carried on a trade of exploiting film rights and allocated what was considered to be the resulting trading loss to the taxpayers. They then claimed sideways relief for their share of the loss.

In January 2013 the taxpayers assigned their capital accounts in the LLPs in return for the purchase price which was used to repay the bank loans. In April 2013 they sold their remaining interests in the LLPs for €2.

HMRC said income tax was due on the purchase price under ITA 2007 part 13 ch 5 (avoidance involving trading losses). The taxpayers appealed. They said ch 5 did not apply because although they had claimed...