John Tenconi v The Commissioners for HMRC

A beneficial interest in an asset may be disposed of for capital gains tax purposes through a declaration of trust, even where the asset’s legal title cannot be transferred under the relevant company articles. The decisive question is whether the beneficial interest has passed. Where the transferor declares himself nominee and trustee for the purchaser in return for consideration, the beneficial interest is transferred and there is a disposal under Taxation of Capital Gains Act 1992.

An appellant may not use an appeal on a permitted ground to revive a ground specifically refused at the permission stage. Finality in permission decisions ordinarily prevents that course.

John Tenconi v HMRC [2021] UKFTT 107 (TC) upheld a capital gains tax closure notice following the appellant’s receipt of £1 million for transferring the entire beneficial interest in four distribution rights in Monarch Assurance Holdings Ltd to Soogen Holdings Limited.

The company’s articles did not permit legal transfer of the distribution rights, although they could be surrendered to the company. Under the agreement, the appellant remained legal holder but held the rights as nominee and trustee for the purchaser.

Permission to appeal was confined to whether the First-tier Tribunal had erred in finding a disposal of the beneficial interest despite the non-transferability of legal title. The central issue was whether that limitation prevented a disposal for capital gains tax purposes.

1. Appeal dismissed. The First-tier Tribunal made no error of law in concluding that the appellant disposed of his beneficial interest in the distribution rights for capital gains tax purposes.
2. The permitted appeal proceeded on the basis that the beneficial interest was an asset. The appellant could not reargue, under the label of disposal, the separately refused contention that the distribution rights were not property or incorporeal property at all. A party cannot ordinarily reopen at the substantive appeal stage a ground expressly rejected, with reasons, at the permission stage. Finality in decision-making supports that result.
3. The relevant asset was the beneficial interest in the rights, rather than the legal title. The agreement provided that the appellant would have no beneficial interest after completion and would hold the rights as nominee and trustee for the purchaser. That declaration of trust transferred the whole beneficial interest in return for £1 million.
4. The absence of a provision in the company’s articles permitting assignment of the legal title did not prevent this disposal. The tribunal accepted the analysis supported by Don King Productions Inc v Warren and others [2000] Ch 291: a non-assignable contractual benefit may nevertheless be the subject of a trust. There was no mismatch between the interest disposed of and the interest vested in the purchaser.
5. It was therefore unnecessary to determine HMRC’s alternative contention that the transaction was a part disposal under section 21(2)(b) of the Taxation of Capital Gains Act 1992. The tribunal nevertheless observed that, if the distribution rights themselves were the relevant asset, retention of legal title could support that alternative analysis.

• Upper Tribunal (Tax and Chancery Chamber): dismissed the appellant’s appeal and upheld the First-tier Tribunal’s conclusion that there was a disposal of the beneficial interest for capital gains tax purposes.
• First-tier Tribunal (Tax Chamber): in John Tenconi v HMRC [2021] UKFTT 107 (TC), dismissed the appeal against HMRC’s closure notice and held that the transfer of the beneficial interest in the distribution rights was a disposal under Taxation of Capital Gains Act 1992.