The Court of Appeal in BlueCrest: partnership incentivisation plan

This is a case about tax alchemy and the quest to turn income into capital and high rates of tax into low rates of tax. In delivering its judgment the Court of Appeal considered and provided insight into some of the most basic elements of the tax code. This is a cautionary tale of the danger of dwelling too long in a metaphorical version of reality and the risk of being mesmerised by appealing labels. Like most alchemy in the end it didn’t work but we are left with clarity that is surely worth its weight in gold and some interesting insight to apply to partnership taxation.

The facts

From 2008 until 2014 (when the fiscal advantages were ended by the introduction of the mixed partnership rules in ITTOIA 2005 s 850C to s 850E) BlueCrest carried on its business in the UK first through a...