Right to receive loan notes superseded by deed of variation

The taxpayers were all UK tax resident and owned the share capital of two UK companies: KWPL and RSL. They agreed to sell the two companies for an ‘initial consideration’ of £106m and included their proportion of this in their self-assessment returns.

Under the agreement the buyer was liable to pay a pass through payment to the sellers if the buyer received a settlement payment in respect of litigation that was in progress. This was settled and the buyer made a pass through payment in June 2013. The taxpayers took this in cash rather than loan notes under a deed of variation. A dispute arose as to the capital gains tax treatment of the payment. The taxpayers maintained the gain was taxable in 2006-07 when business asset taper relief was available rather than in 2013-14 when it was not.

The First-tier Tribunal said the entitlement to the payment was...