The Trustees of the Morrison 2002 Maintenance Trust & Ors v Revenue And Customs

The Ramsay approach requires a purposive construction of the taxing statute and a realistic view of the transaction as a whole. A commercially irrelevant contingency, or a minor variation in implementation, does not necessarily defeat the analysis. There is no universal requirement that the ultimate purchaser, price or detailed sale arrangements be identified at the first step. Their significance depends on the nature of the asset and the practical likelihood of the intended disposal. Quoted shares capable of prompt market sale may form part of a composite transaction even without prior sale arrangements.

Trustees sought to avoid capital gains tax by transferring quoted shares to Irish-resident trustees under put options, arranging their onward sale, and later replacing the Irish trustees with UK-resident trustees. The shares were ultimately sold to Merrill Lynch under a risk-bid arrangement and then placed on the market.

The First-tier Tribunal and the Upper Tribunal, [2017] UKUT 0300 (TCC), applied the Ramsay approach and concluded that the trustees had made a taxable disposal. The appeal concerned the relevant date for the analysis, whether the onward sale formed part of a single composite transaction, and whether the Merrill Lynch arrangement made a material difference.

Appeal dismissed. The Court of Appeal agreed with the Upper Tribunal that the trustees were to be treated as having disposed of the shares to Merrill Lynch for capital gains tax purposes.

1. The Ramsay approach is a general rule of statutory construction. The court must construe the relevant provision purposively, identify the transaction to which it was intended to apply, and then ask whether the actual transaction, viewed realistically, answers that description. The approach does not create technical rules of its own. This was consistent with WT Ramsay Ltd v Inland Revenue Commissioners [1982] AC 300, Barclays Mercantile Finance Ltd v Mawson [2004] UKHL 51, Collector of Stamp Revenue v Arrowtown Assets Ltd [2003] HKCFA 46, and Furniss v Dawson [1984] AC 474.
2. The critical date was 25 November 2004, when the put options were exercised, rather than 19 November, when they were granted. Until exercise, the Scottish Trustees were free not to transfer the shares. Exercise and onward sale could themselves constitute a pre-ordained series or single composite transaction.
3. Craven v White [1989] AC 398 was distinguishable. It concerned uncertainty as to whether a later sale would occur because no composite transaction had yet been put together. It did not establish a universal requirement that the purchaser, price, or prior sale arrangements be known at the first step. The relevance of prior arrangements depends on the nature of the asset. For quoted shares, a rapid market sale may require little or no advance preparation.
4. The commercially irrelevant “Relevant Event” did not prevent the composite analysis. Nor did the sale to Merrill Lynch rather than directly to the market. The risk-bid arrangement sufficiently corresponded to the intended market sale and was only a minor variation. The purposive application of the Taxation of Chargeable Gains Act 1992 therefore treated the arrangement as a disposal.

1. Court of Appeal (Civil Division): Appeal dismissed.
2. Upper Tribunal (Tax and Chancery Chamber): In [2017] UKUT 0300 (TCC), the tribunal upheld the First-tier Tribunal’s conclusion that the Ramsay approach applied and that capital gains tax had not been avoided.