The Executors of Paul Hunt & Ors v The Commissioners for HMRC

When construing a tax provision, the enacted words and their statutory context remain primary. A tribunal may correct an obvious drafting error only where it is abundantly sure of the intended purpose, an inadvertent failure to give effect to it, and the substance of the provision Parliament would have made. Under the version of Income Tax Act 2007 considered here, the cross-reference in section 685(6) was not an obvious error. The words “despite the fact that” limited the exclusion to returns of subscribed capital which could lawfully be distributed as dividends under the law of the company’s place of incorporation. The Upper Tribunal therefore dismissed the appeal against the counteraction notices.

The appellants were the executors of Paul Hunt, together with James Hunt and Robert Davis. They received consideration when Golf Holdings Ltd, a close company, reduced its share capital. HMRC issued counteraction notices under the transactions in securities provisions of the Income Tax Act 2007. The First-tier Tribunal dismissed the appellants’ appeals: [2025] UKFTT 538 (TC).

The appellants argued that section 685(6) excluded all returns of subscribed capital and that its reference to section 685(2)(a) and (b) should be corrected as a drafting error. HMRC supported the result below but argued that the cross-reference should be corrected. The central questions were whether section 685(6) contained an obvious error and, if not, whether its exclusion covered this capital reduction.

1. Appeal dismissed; HMRC’s Respondents’ Notice rejected. The Upper Tribunal agreed with the First-tier Tribunal’s conclusions, though its reasoning differed.
2. Statutory construction. The tribunal treated the enacted words, read in their statutory context, as the primary source of meaning. Legislative history and earlier judicial decisions could assist with context, but could not displace the current provision’s clear wording. R (on the application of O (a child)) v Secretary of State for the Home Department and R (on the application of Spath Holme Ltd) v Secretary of State for the Environment, Transport and the Regions informed that approach.
3. No correctable drafting error. Under Inco Europe Limited v First Choice Distribution, correction is confined to plain cases in which the court is abundantly sure of the provision’s intended purpose, Parliament’s inadvertent failure to give effect to it, and the substance of the provision Parliament would have enacted. The reference in section 685(6) to section 685(2)(a) and (b) was clear. It was not abundantly clear that it was inadvertent, and the resulting treatment of capital repayments was not wholly unreasonable. The tribunal could not substitute a reference to section 685(4)(a)(i) and (ii).
4. Scope of section 685(6). The words “despite the fact that” qualified the exclusion and meant “where”, rather than “even where”. The provision applied only where the law of the company’s place of incorporation allowed assets representing returned subscribed capital to be distributed by way of dividend. “Assets of that description” referred to the assets when returned as subscribed capital; it did not ask whether the cash itself could have been paid as a dividend from the company’s distributable reserves. Earlier cases on prior versions of the legislation assisted with the background but did not answer the construction of the post-2010 wording.
5. Other arguments. The capital reduction and any later distribution were separate receipts taxed under the provisions applicable to each. The tribunal rejected the contention that this amounted to double taxation in the ordinary sense.

1. Upper Tribunal (Tax and Chancery Chamber): Dismissed the appellants’ appeal and rejected HMRC’s Respondents’ Notice: [2026] UKUT 342 (TCC) .
2. First-tier Tribunal (Tax Chamber): Dismissed the appeals against the counteraction notices: [2025] UKFTT 538 (TC).