Tax Law / Revenue Law (LLB undergraduate module)

# Tax Law / Revenue Law — LLB Undergraduate Module
## Topic Notes: Key Legal Propositions with Real Case Authority

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## 1. Foundations of UK Taxation

### Constitutional Basis
Parliament holds the exclusive taxing power. All tax charges must be authorised by statute. HMRC administers tax under the Taxes Management Act 1970 (TMA 1970), which confers powers of enquiry, discovery assessment, and closure notice.

**Self-assessment and enquiry powers:** HMRC may issue a discovery assessment under s.29 TMA 1970 where an officer discovers that income or gains have been insufficiently assessed. The jurisdiction to challenge such assessments lies with the First-tier Tribunal (Tax Chamber).
- *Cotter v Commissioners for Her Majesty's Revenue & Customs* [2013] UKSC 69 — The Supreme Court held that the boundary between the FTT's jurisdiction and the county court/High Court turns on the proper interpretation of TMA 1970. Where a taxpayer amended a return to claim loss relief, HMRC could challenge via the TMA machinery rather than by separate civil proceedings.
- *Robert Huish v The Commissioners for HMRC* [2026] UKFTT 129 (TC) — Discovery assessments under s.29 TMA 1970 issued for tax years 2015/16–2017/18; the FTT considered validity requirements for such notices.

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## 2. Income Tax

### 2.1 Employment Income — ITEPA 2003

Employment income is taxed under ITEPA 2003. The charge covers salary, wages, and benefits-in-kind. Termination payments are treated as employment income under ITEPA 2003 s.401 subject to the £30,000 exemption under s.403.

**Termination payments and discrimination settlements:**
A lump sum paid on termination is prima facie taxable under ITEPA 2003 s.401 even where the employer labels it a settlement of discrimination claims, unless the payment is genuinely for injury to feelings (which attracts a separate exemption).
- *Moorthy v Revenue & Customs* [2014] UKFTT TC TC03952 — Mr Moorthy received £200,000 on redundancy under a compromise agreement. He argued the payment was non-taxable as it compensated a discrimination claim or protected Jacobs' reputation. HMRC contended the sum was a termination payment under ITEPA 2003 s.401 (minus the £30,000 exemption under s.403 and a further £30,000 for injury to feelings). The FTT upheld HMRC's approach, confirming the prima facie charge on termination payments.

**Employment-related securities options (ITEPA 2003 s.471):**
Where share options are granted by reason of employment or an arrangement associated with employment, they are "employment-related securities options" and gains on exercise are chargeable to income tax as employment income.
- *Commissioners for His Majesty's Revenue and Customs v Vermilion Holdings Ltd (Scotland)* [2023] UKSC 37 — Supreme Court ruled on interpretation of ITEPA 2003 s.471. Share options granted to service providers in a 2006 funding exercise were employment-related securities options; gains on exercise were therefore liable to income tax as employment income. The Supreme Court confirmed that where a company grants options and there is an arrangement connected with employment, the statutory deeming provision applies to bring those options within the income tax charge.

**Income distributions and settlements legislation:**
Sums extracted from a company by a director-shareholder in a form designed to avoid income tax on dividends are taxable as distributions and therefore as income.
- *Sharon Clipperton & Anor. v The Commissioners for HMRC* [2022] UKUT 351 (TCC) — HMRC assessed director-shareholders to income tax on sums received from an "Aikido" arrangement designed to avoid higher-rate income tax on dividends. The UT upheld the FTT's finding that the sums were income distributions; the settlements legislation argument failed on appeal.

### 2.2 Income vs Capital — Property Disposals

Whether proceeds of sale are income (subject to income tax) or capital (subject to CGT) turns on the nature and pattern of the activity. Repeated, systematic buying and selling of property to profit from resale constitutes a trading activity giving rise to income.
- *Mark Campbell v The Commissioners for HMRC* [2023] UKUT 265 (TCC) — Mr Campbell sold four residential properties between 2010 and 2016. The UT considered whether the disposals were subject to CGT or income tax. The case addresses the income/capital boundary in the context of residential property — a key distinction in LLB tax exams.

### 2.3 Film Production and Trading — LLPs

Where LLPs engage in film production activities, the tax treatment of rights acquired as "intangible fixed assets" under CTA 2009 Part 8 affects available reliefs for corporate members. Trading status and the correct characterisation of assets determine which relief applies.
- *Inside Track 3 LLP & Anor v The Commissioners for HMRC* [2025] UKFTT 986 (TC) — Part of long-running litigation on film partnership tax relief; the FTT examined whether rights acquired by the LLPs qualify as intangible fixed assets under CTA 2009 Part 8.

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## 3. Capital Gains Tax

### 3.1 Charge and Disposal — TCGA 1992

Capital gains tax is charged under TCGA 1992 s.1 on chargeable gains accruing to a person on the "disposal of assets." "Assets" is defined broadly under TCGA 1992 s.21 to include all forms of property. A disposal occurs even where the legal title to property is incapable of formal transfer, provided there is a transfer of beneficial interest.

**Disposal of beneficial interest where legal transfer is impossible:**
The fact that the legal title to an asset cannot be formally transferred does not prevent a "disposal" for CGT purposes if the beneficial interest passes.
- *John Tenconi v The Commissioners for HMRC* [2024] UKUT 110 (TCC) — Mr Tenconi transferred his beneficial interest in distribution rights (assets under TCGA 1992 s.21) for £1m. Although the legal title could not be transferred under the company's articles, the UT held this was nonetheless a disposal for CGT purposes. The narrow issue certified for appeal: whether a disposal occurs despite the impossibility of legal transfer. The UT upheld the FTT: a CGT disposal does not require the transfer of legal title.

### 3.2 Private Residence Relief (PPR) — s.222-223 TCGA 1992

PPR exempts gains on the disposal of a dwelling-house that has been the individual's only or main residence throughout the period of ownership. Where the property is not the main residence for the entire period, only a proportionate fraction of the gain is exempt under s.223(2) TCGA 1992.

**Period of ownership includes land acquired before the house was built:**
Where land is purchased, a house demolished and a new house built, the "period of ownership" for PPR apportionment begins from acquisition of the land, not from when the new house became habitable. PRR is therefore only available for the fraction of the ownership period during which the house was the main residence.
- *The Commissioners for HMRC v Gerald Lee* [2023] UKUT 242 (TCC) — The Lees bought land in October 2010, demolished the house, built a new house (habitable March 2013) and sold in May 2014. They claimed full PRR. HMRC argued only a proportion was exempt. The UT (reversing the FTT) held that the "period of ownership" under s.223(2) TCGA 1992 runs from acquisition of the land, not from occupation. PRR was apportioned accordingly, producing a significant chargeable gain.

### 3.3 Business Asset Disposal Relief (formerly Entrepreneurs' Relief) — s.169I TCGA 1992

For business asset disposal relief (BADR), conditions A and B of TCGA 1992 s.169I(5) must both be satisfied: the company must be a qualifying trading company (not mainly holding investment assets), and the individual must hold qualifying shares. A marina/moorings business that derives substantial income from property-like activities may fail the trading company test.
- *Andrew Moffat v The Commissioners for HMRC* [2025] UKFTT 663 (TC) — The Moffats claimed entrepreneurs' relief (now BADR) on disposal of shares in Chelsea Yacht and Boat Company Ltd (a marina moorings business). HMRC disallowed the claim: CYBC was not a trading company under TCGA 1992 s.169I(5) conditions A and B. The FTT examined whether the business was "trading" or predominantly an investment/property business.

### 3.4 CGT — Avoidance via Trust Offshore Residence

A scheme designed to relocate the "place of effective management" (POEM) of a family trust to Mauritius to avoid CGT on share disposals fails if in fact the POEM was at all material times in the UK.
- *Geoffrey Richard Haworth & Ors v The Commissioners for HMRC* [2024] UKUT 58 (TCC) — Settlors used the "round the world" scheme to make Mauritius-resident trustees the effective managers, so gains on TeleWork Group Plc flotation would not be subject to UK CGT. The UT held the POEM was in the UK, so the scheme was ineffective.
- *Geoffrey Richard Haworth & Ors v The Commissioners for HMRC* [2025] EWCA Civ 822 — Court of Appeal considered interpretation of "place of effective management" in the UK-Mauritius double tax treaty. The POEM concept turns on where key decisions are in substance made, not on formal trustee residence.

### 3.5 Substantial Shareholding Exemption — Corporation Tax on Gains

A company disposing of a shareholding in a subsidiary is exempt from corporation tax on gains if the substantial shareholding exemption (SSE) under TCGA 1992 Schedule 7AC applies. The exemption requires the disposing company to have held a "substantial shareholding" (generally at least 10%) for at least 12 months in a 24-month window. The meaning of "group" under TCGA 1992 s.170 affects whether the conditions are met.
- *M Group Holdings Limited v The Commissioners of HMRC* [2023] UKUT 213 (TCC) — The UT considered the correct construction of TCGA 1992 s.170 and paragraphs 15A and 26 of Schedule 7AC in determining whether M Group was entitled to SSE on the sale of a subsidiary shareholding. HMRC argued the conditions were not met; the UT examined the statutory meaning of "group" for SSE purposes.

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## 4. Corporation Tax

### 4.1 Capital Allowances — Balancing Charges

Capital allowances under the Capital Allowances Act 2001 operate to spread the cost of capital expenditure. On disposal, a balancing charge may arise. The correct computation of a company's assessable profit for petroleum revenue tax (PRT) including whether expenditure was "allowable" turns on statutory construction.
- *The Commissioners for HMRC v Perenco UK Limited* [2023] UKUT 169 (TCC) — Concerned PRT liability and whether expenditure during 2015 was allowable in computing Perenco's assessable profit. The UT considered whether third-party contributions to costs required disallowance.
- *Cats North Sea Limited v The Commissioners for HMRC* [2026] UKUT 142 (TCC) — Concerned the correct computation of a balancing charge under the capital allowance regime following a hive-down and subsequent share disposal; turned on statutory interpretation of the capital allowances provisions.

### 4.2 Film Production — Intangible Fixed Assets (CTA 2009 Part 8)

Corporate members of LLPs engaged in film production can claim relief if the rights acquired constitute "intangible fixed assets" under CTA 2009 Part 8. The correct classification of those assets determines entitlement to relief.
- *Inside Track 3 LLP & Anor v The Commissioners for HMRC* [2025] UKFTT 986 (TC) — see section 2.3 above.

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## 5. Inheritance Tax

### 5.1 Charge and Estate Valuation — IHTA 1984

IHT is charged on the value of a deceased's estate on death under IHTA 1984. The estate includes all property to which the deceased was beneficially entitled immediately before death, including choses in action (debts and rights to repayment).

**Right to repayment of overpaid income tax as part of the estate:**
A deceased person's right to repayment of overpaid income tax is a chose in action and part of the estate for IHT purposes. The market value of that right is the amount actually repayable by HMRC.
- *Thomas v Revenue and Customs* [2025] UKFTT TC TC09716 — The executor claimed an income tax repayment owed to the deceased was not part of her estate, or should be discounted. The FTT dismissed the appeal: the right to repayment was either a "debt" or a "chose in action" under IHTA 1984 and was properly included in the estate at its face value. There were no circumstances in which the amount could be altered by post-death events.

### 5.2 IHT — Property Valuation on Death

IHT on the death estate is computed by reference to the market value of property (the open market price a willing buyer and seller would agree) at the date of death. In property disputes, the Valuation Office Agency provides expert evidence.
- *Bozidar Zabavnik v The Commissioners for HMRC* [2021] UKUT 213 (LC) — Concerned the valuation for IHT purposes of three freehold houses at the date of death. Mr Zabavnik challenged HMRC's valuations; the UT determined market value under IHTA 1984 s.222(4A).

### 5.3 IHT — Charity Exemption (IHTA 1984 s.23)

Where property in an estate passes to a charity, it is exempt from IHT under IHTA 1984 s.23. The charity must be established under the law of a member state of the EU (now a post-Brexit issue). A bequest to a Jersey charitable body may not attract the exemption if Jersey is not a qualifying territory.
- *Routier & Anor v Revenue And Customs* [2014] EWHC Ch 3010 — Executors of Mrs Coulter's will (she was domiciled in Jersey) claimed IHT charity exemption under IHTA 1984 s.23 for a residuary bequest to a Jersey entity to provide homes for the elderly. HMRC refused: the body was not established under UK or EU law. The High Court considered whether s.23 applied.
- *Routier & Anor v Revenue And Customs* [2017] EWCA Civ 1584 — Court of Appeal stage of the same litigation, examining the interaction of the IHTA charity exemption with EU free movement of capital and the territorial scope of "charity."

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## 6. VAT

### 6.1 Exempt Supplies — Medical Care (VATA 1994 Schedule 9, Group 7)

VAT exempt supplies include "medical care" under Group 7 of Schedule 9 VATA 1994. A supply is "medical care" only if its primary purpose is protecting, restoring or maintaining health. Cosmetic treatments supplied for aesthetic reasons do not qualify.
- *Graham (t/a Skin Science) (VAT) v Revenue and Customs* [2024] UKFTT TC TC09152 — Cosmetic skin treatments were not exempt under Group 7 Schedule 9 VATA because their primary purpose was not medical care for health. Note: the FTT also found the assessment out of time under VATA 1994 s.73(6)(b) on the procedural point, so that aspect was upheld for the taxpayer.

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## 7. Tax Avoidance

### 7.1 Tax Avoidance — Offshore Trust Schemes

Structured arrangements designed to relocate the effective management of a trust offshore to avoid UK CGT are scrutinised by reference to where decisions are in substance made. Formal steps that do not reflect the reality of management are ineffective.
- *Geoffrey Richard Haworth & Ors v The Commissioners for HMRC* [2024] UKUT 58 (TCC) and [2025] EWCA Civ 822 — The "round the world" scheme was ineffective because the POEM was in the UK. This illustrates the judicial approach to avoidance schemes that rely on paper changes of residence.

### 7.2 Income Tax Avoidance — Distribution Schemes

Tax-driven arrangements designed to convert what would be dividend income into a form not subject to higher-rate income tax are treated as distributions and taxed accordingly.
- *Sharon Clipperton & Anor. v The Commissioners for HMRC* [2022] UKUT 351 (TCC) — "Aikido" dividend scheme defeated; distributions taxed as income.

### 7.3 Film Partnership Schemes

Film production LLP schemes have been subject to extensive HMRC challenge. The correct classification of assets and computation of relief under CTA 2009 Part 8 remains in dispute in ongoing litigation.
- *Inside Track 3 LLP & Anor v The Commissioners for HMRC* [2025] UKFTT 986 (TC) — Continuation of Ingenious-related litigation; asset classification issue under CTA 2009 Part 8.

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## Statutory Reference Table

| Statute | Key Provisions |
|---|---|
| TMA 1970 | s.29 discovery assessment; s.28A closure notice |
| ITEPA 2003 | s.401 termination payments; s.403 £30,000 exemption; s.471 employment-related securities options |
| TCGA 1992 | s.1 charge to CGT; s.21 assets; s.222-223 PPR; s.169I BADR; s.170 groups; Sch.7AC SSE |
| IHTA 1984 | s.23 charity exemption; s.222 valuations |
| CTA 2009 | Part 8 intangible fixed assets |
| VATA 1994 | Sch.9 Group 7 medical care; s.73(6)(b) time limit |