A recent UK tax case illustrates the importance of satisfying all legal requirements, and not just those contained in the Taxes Acts.
The taxpayer was an individual who disposed of shares in a private company. The disposal was made pursuant to an oral agreement for the redemption of his shares (i.e. a ‘buy-back’). The heads of terms of the oral agreement had been recorded in writing by a mediator. The taxpayer claimed a UK tax relief against the gain arising on the shares. HMRC challenged his entitlement to the relief.
The date of disposal was the key issue in determining whether the taxpayer qualified for the relief.
The Tribunal held that UK company law required certain approvals be put in place prior to any agreement taking effect. Those requirements had not been satisfied at the time when the taxpayer claimed the disposal had taken place. Therefore the Tribunal held that the disposal had not occurred at that time, but at a later date when the company law requirements had been satisfied. The Taxpayer no longer qualified for the relief at that later date. As a result, the company law technicality cost the taxpayer £37,384 in tax. His liability to interest and penalties was not stated.
The case is a salient reminder that all legal requirements (and not just those contained in the Taxes Acts) should be considered in the context of a transaction.