The effect of a transaction is not necessarily a purpose

The taxpayers were serial entrepreneurs who 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 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 under ITA 2007 s 684 and assessed the taxpayers to income tax.

The First-tier Tribunal dismissed the taxpayers’ appeal. It concluded the taxpayers’ main purpose of obtaining EIS relief meant that by definition they had a main purpose of obtaining an income tax advantage. They were therefore liable to a counteraction notice.

The taxpayers appealed.

The...