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Main purpose was to obtain an income tax advantage

23 May 2024
Issue: 4938 / Categories: Tax cases
H Osmond and another (TC9163)

The taxpayers were serial entrepreneurs. They subscribed for enterprise investment scheme (EIS) shares in Xercise Ltd. The business was not profitable and was sold in 2002.

However the taxpayers retained their shareholdings in the company which broadly after various transactions became an investment company. In 2015 the taxpayers entered into share buybacks. In their self assessment returns they said the consideration they received was capital and exempt from capital gains tax by reason of EIS disposal relief.

After an enquiry HMRC issued transaction in securities counteraction notices and assessed the taxpayers to income tax.

The taxpayers appealed.

The first issue for the First-tier Tribunal was whether a main purpose of the taxpayers being a party to the share buybacks was to obtain an income tax advantage. It found that obtaining such an advantage was a main purpose because of the way the law...

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