Tax advantage was a main purpose of the transaction

The taxpayers set up a company P in which they each owned 30% of the shares. A fourth party held the remaining 10%. In August 2013 a new holding company J was inserted above P. J acquired the entire share capital of P. In return the taxpayers each received 25% of the ordinary share capital and £600 000 £1 preference shares in J and the fourth shareholder received 25% of J’s ordinary shares designated as ‘A’ shares.

J later repurchased all the preference shares for their nominal value so the taxpayers received £600 000 each. They reported the disposal of the shares as a capital gain.

The taxpayers had received statutory clearance from HMRC that the transactions in securities legislation would not apply but they had not mentioned the possibility of J repurchasing the preference shares. HMRC said the clearance was therefore void...