Astall & Anor v Revenue & Customs

For a security to be a relevant discounted security, the statutory test must be applied to the transaction viewed realistically and as a whole. A theoretical possibility of a deep gain is insufficient where, at issue, there is no realistic possibility that the gain will arise. Artificial contingencies inserted solely to defeat a purposive analysis may be disregarded. The legislation cannot be used to manufacture allowable losses through arrangements designed to produce a substantial loss while retaining the economic benefit of the capital.

The appellants appealed from the Special Commissioner’s decision of 14 August 2007, which dismissed their appeals against amendments to their self-assessment returns for 2001–02. Each appellant had subscribed for a zero-coupon security issued through a trust and later transferred it to a bank at a substantial loss. They claimed income-tax relief under Schedule 13 to the Finance Act 1996.

The factual loss and the status of the instrument as a security were agreed. The issue was whether the instruments were “relevant discounted securities”, having regard to the possible redemption events and the statutory requirement for a deep gain.

1. The appeals were dismissed. The appeal jurisdiction involved a review of the Special Commissioner’s decision and was confined principally to questions of law. On questions of fact, the Edwards v Bairstow standard applied: intervention required absence of evidence or a conclusion that no reasonable tribunal could reach (para. [22]).

2. The Special Commissioner was entitled to find that a purchaser would be found within the relevant period, or that the redemption notice period would be abridged. That finding was supported by the evidence and was not open to challenge on appeal (paras. [23]–[24], [41]–[44]).

3. The statutory question had to be answered by construing Schedule 13 in its legislative context and considering the transaction realistically. The court had to identify the statutory purpose and then determine whether the actual transaction, viewed as a composite arrangement, fell within the statutory description. The authorities did not establish an automatic rule applicable without regard to the particular statutory language (paras. [51]–[58]).

4. The Market Change condition and the deliberate delay in seeking a purchaser were anti-avoidance devices. They created only artificial or commercially irrelevant contingencies. Following the reasoning discussed in IRC v Scottish Provident, those contingencies could be disregarded where the parties intended the scheme to operate in a particular way and the contrary outcome was only an acceptable risk within the scheme (paras. [31], [55]–[58]).

5. On the findings, there was no realistic possibility of a deep gain. The securities were structured so that they would be sold and immediately redeemed at a substantial loss. The theoretical possibility of a gain therefore did not make them relevant discounted securities. Allowing relief would permit taxpayers to manufacture allowable losses by inserting mechanisms which nominally created the possibility of a deep gain (paras. [42]–[45]).

6. The same conclusion applied to Mr Astall. The possibility of early redemption involved an artificial circular arrangement using trust capital and did not alter the proper purposive construction of the legislation (paras. [38]–[39], [59]–[60]).

The appellants appealed to the High Court from the Special Commissioner’s decision released on 14 August 2007, which had dismissed their appeals against amendments to their self-assessment returns. The High Court dismissed both appeals.