The Quentin Skinner 2015 Settlement L & Ors. v The Commissioners for HMRC

For entrepreneurs’ relief under Chapter 3 of Part V of the Taxation of Chargeable Gains Act 1992, a disposal of trust business assets requires a disposal of settlement business assets, an individual who is a qualifying beneficiary at the date of disposal, and the relevant one-year entrepreneurial connection. The beneficiary need not have held the interest in possession throughout that one-year period. The statutory code is construed as a self-contained scheme. No additional minimum holding period may be implied from section 169J or from the apportionment provision in section 169O. The appeal was allowed and the First-tier Tribunal’s decision restored.

The trustees of three family settlements disposed of DPAS shares on 1 December 2015. Each life tenant had an interest in possession under the relevant settlement and had been an officer and shareholder of DPAS since 2011, but the trustees had acquired the shares only on 11 August 2015. HMRC refused claims for entrepreneurs’ relief on the basis that the interest in possession had to subsist for 12 months before disposal.

The First-tier Tribunal allowed the appeals: [2019] UKFTT 516 (TC). The Upper Tribunal reversed that decision: [2021] UKUT 29 (TCC). The central issue before the Court of Appeal was whether section 169J required the qualifying beneficiary’s interest in possession to subsist throughout the one-year period specified in section 169J(4).

Sir Launcelot Henderson delivered the leading judgment. Snowden LJ and Lewison LJ agreed. The appeal was allowed and the First-tier Tribunal’s decision was restored.

1. Statutory approach. Chapter 3 of Part V of the Taxation of Chargeable Gains Act 1992 was a modern, self-contained code. It had to be read as an integrated scheme, without importing requirements from the predecessor retirement-relief provisions merely because the new rules were broadly based on them. That approach was consistent with R (on the application of Derry) v Revenue and Customs Commissioners [2019] UKSC 19, Eclipse Film Partners (No.35) LLP v Revenue and Customs Commissioners [2014] STC 1114 and Farrell v Alexander [1977] AC 59.
2. Section 169J. The section prescribed three sequential and cumulative ingredients: the trustees’ disposal of settlement business assets; an individual who was a qualifying beneficiary under section 169J(3); and satisfaction of the relevant condition in section 169J(4) or (5). A qualifying beneficiary was identified by reference to the trusts at the date of disposal. An interest in possession otherwise than for a fixed term was required, but no minimum period of possession was specified.
3. Relevant condition. For a disposal of shares, section 169J(4) required the qualifying beneficiary’s personal company to have the specified trading status and the beneficiary to be an officer or employee throughout a qualifying one-year period. It did not require the beneficiary’s interest in possession to subsist throughout that period. The references to the qualifying beneficiary in sections 169J(4) and (5), 169M and 169N referred back to the individual identified under section 169J(3).
4. Section 169O. Section 169O was an apportionment provision operating only after a disposal under section 169J had been established. Its apparent assumption that the qualifying beneficiary had an interest in possession at the material time could not override the clear structure and wording of section 169J. The possible drafting difficulty was confined to the comparatively unusual cases in which the material time preceded disposal.

• Court of Appeal (Civil Division): Appeal allowed. The First-tier Tribunal’s decision was restored.
• Upper Tribunal (Tax and Chancery Chamber): Reversed the First-tier Tribunal’s decision: [2021] UKUT 29 (TCC); [2021] STC 412.
• First-tier Tribunal: Allowed the trustees’ appeals against the closure notices: [2019] UKFTT 516 (TC); [2019] SFTD 1331.