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The taxpayer owned 98 per cent of shares in BML. In 1997, he borrowed £50,000 from his parents who were non resident in the United Kingdom, under a loan agreement providing that if the BML shares were sold within two years, the parents would be entitled to 60 per cent of the profit from the net proceeds. The taxpayer sold the shares within two years, and paid his parents according to the loan agreement.
The taxpayer owned 98 per cent of shares in BML. In 1997, he borrowed £50,000 from his parents who were non resident in the United Kingdom, under a loan agreement providing that if the BML shares were sold within two years, the parents would be entitled to 60 per cent of the profit from the net proceeds. The taxpayer sold the shares within two years, and paid his parents according to the loan agreement.
The Revenue assessed the taxpayer to capital gains tax on the basis of the full amount, as he had been the beneficial owner of the shares. He appealed, saying that he was the beneficial owner of only 38 per cent of the shares, as 60 per cent had been transferred to his parents.
The Special Commissioner in rejecting the appeal held that the relationship was that of debtor and creditor, and that there had never been a transfer of shares. The taxpayer appealed to the High Court.
Mr Justice Park said that in assessing the consideration received for an asset for capital gains tax, it was the amount of consideration for which the asset was sold that was relevant, not the amount which the vendor was entitled to receive. The assessable amount in the instant case, was the amount which the appellant received from the vendor, and not the amount he retained after repaying the loan to his parents. The loan was irrelevant for the purposes of capital gains tax, and the taxpayer had always been the beneficial owner of all the shares.
The appeal was dismissed.
(Burca v Parkinson, Chancery Division, 4 July 2001.)
