Revenue and Customs v Collins

For capital gains tax purposes, the consideration for disposing of an asset is identified by construing the parties’ transaction as documented. Where the agreement is clear, the court gives effect to its terms. Payment of the price to a third party at the vendor’s direction, followed by application of the money for the vendor’s benefit, does not prevent it being consideration for the disposal. The court must distinguish the consideration for the disposal from what is subsequently done with that consideration. Deferred consideration falls within section 48 of the Taxation of Chargeable Gains Act 1992 only where its amount is ascertained or ascertainable at the disposal date. Where it is wholly uncertain, the value of the right to receive it is treated as consideration and the right is a separate asset.

The Revenue appealed against a Special Commissioner’s decision concerning the capital gains tax treatment of £95,179 paid by a purchaser to a company at the direction of its shareholder, as part of a share sale transaction. The company then paid £120,480 into the shareholder’s pension fund.

The Special Commissioner held that the £95,179 was not consideration for the shareholder’s disposal of his shares. The High Court considered both the substantive construction issue and procedural arguments concerning the Revenue’s closure notice and the scope of the claim. The central issues were whether the payment formed part of the immediate consideration and whether the Revenue could rely on it when determining a later repayment claim.

1. Substantive appeal. The Revenue’s appeal was allowed on the substantive issue. The share sale agreement expressly provided that £95,179 was payable on completion as part of the consideration for the shares. Payment to the company at the shareholder’s direction did not alter its character as consideration for the disposal.
2. The Special Commissioner had focused on the pension contribution made by the company rather than the payment made by the purchaser. That analysis confused the consideration for the disposal with the subsequent application of the consideration. The transaction had to be construed according to the agreement, read in the light of the surrounding circumstances. The agreement was clear and unambiguous.
3. The fact that the parties could have structured the transaction differently did not permit the court to treat it as if they had adopted another structure. The entire agreement was contained in the share sale agreement, and no pre-existing obligation to make the pension contribution had been found.
4. Section 48(1) of the Taxation of Chargeable Gains Act 1992 applied only to deferred consideration ascertained or ascertainable at the disposal date. The deferred consideration here was wholly uncertain in amount. The value of the right to receive it was therefore brought into the computation, and that right was a separate asset for capital gains tax purposes.
5. Procedure and jurisdiction. The closure notice was not a nullity despite its defects. It sufficiently conveyed that the repayment claim was being disallowed. The inspector’s failure to make a further assessment under Schedule 1A to the Taxes Management Act 1970 lost the opportunity to assess the £95,179, but did not invalidate the notice.
6. The repayment claim was misconceived whether analysed under section 48 of the 1992 Act or section 33 of the 1970 Act. A section 48 claim concerns only whether qualifying consideration was brought into account and whether it later proved irrecoverable. It cannot reopen the original computation to bring into charge immediate consideration which was outside section 48. The appeal was nevertheless allowed because the claim had to be disallowed in full.

• High Court (Chancery Division): allowed the Revenue’s appeal from the Special Commissioner’s decision dated 22 January 2008. The court held that the £95,179 formed part of the immediate consideration for the shares, while leaving open whether the taxpayer should formally be permitted to raise the new procedural points.