Timothy Watts v The Commissioners for HMRC

Relief for a loss from discount on a gilt strip under paragraph 14A of Schedule 13 to the Finance Act 1996 concerns real economic losses. The statutory formula must be construed purposively and applied to the transaction viewed realistically. Where a pre-planned composite transaction transfers the strip through assignment and exercise of an option, amounts paid by the transferee at both stages may be the “amount payable on the transfer”. The transfer must not be artificially divided to create an arithmetical loss. The absence of express anti-avoidance provisions does not prevent this approach.

The appellant claimed income tax relief of £1,349,600 for an alleged loss on the purchase and subsequent transfer of a gilt strip under paragraph 14A of Schedule 13 to the Finance Act 1996. The First-tier Tribunal allowed relief for only £6,300 and dismissed the claim in all other respects: [2022] UKFTT 408 (TC). The Upper Tribunal dismissed the appeal: [2024] UKUT 00168 (TCC).

The scheme involved the grant of an option to a trust, assignment of the option to Investec, and exercise of the option by Investec. The central issue was whether the amount payable on the transfer included both the exercise price paid to the appellant and the larger sum paid to the trustee for the assignment of the option. The appellant also challenged the treatment of Berry v HMRC in light of UBS AG v HMRC.

The appeal was dismissed unanimously. Lord Justice Miles gave the leading judgment, with Lord Justice Arnold and Lord Justice Lewison agreeing.

1. Statutory construction. The approach derived from Ramsay and summarised in Rossendale Borough Council v Hurstwood Properties (A) Ltd [2021] UKSC 16 is an application of ordinary purposive statutory interpretation. The court must construe the particular provision in the context of the statutory scheme and apply it to the facts realistically and without tunnel vision. Interpretation and application are helpful analytical stages, but they have no rigid boundary.
2. Purpose of paragraph 14A. Paragraph 14A was directed to relief for real losses from transactions in gilt strips, rather than artificial losses represented only by an arithmetical difference. Its statutory inputs therefore required purposive and practical construction. The deeming provisions for strips held on 5 April did not alter the calculation for an actual transfer.
3. Composite transaction. The grant and assignment of the option, followed by its exercise, formed a unified, pre-planned transaction by which the entire interest in the gilt strip passed from the appellant to Investec. Investec had to pay at both stages, and those amounts were predetermined. It would be artificially blinkered to treat only the exercise price as payable on the transfer.
4. Meaning of “on the transfer”. The phrase could include amounts payable for or in return for the transfer. It was not confined to sums payable simultaneously with, or only on the legal occasion of, the transfer. Paragraph 4 of Schedule 13 and George Wimpey & Co Ltd v IRC [1975] 1 WLR 995 did not require examination of the precise moment when title passed. Paragraph 4(3) merely provided machinery for identifying the time of transfer.
5. The absence of express anti-avoidance provisions, and the statutory history and extra-statutory materials relied upon, did not change the result. The relevant question remained whether the purposively construed provision applied to the transaction viewed realistically. The FTT and UT had made no material error. Ground 1(b) failed; ground 1(a) did not require separate determination and, in any event, disclosed no material error. Ground 2 required no further elaboration.

• Court of Appeal (Civil Division): Appeal dismissed; [2025] EWCA Civ 1615.
• Upper Tribunal (Tax and Chancery Chamber): Appeal from the First-tier Tribunal dismissed; [2024] UKUT 00168 (TCC).
• First-tier Tribunal: The appellant’s challenge to HMRC’s closure notice and amendment was substantially rejected. The relievable loss was assessed at £6,300; [2022] UKFTT 408 (TC).