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England and Wales Court of Appeal (Civil Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Blackwell v HM Revenue & Customs [2017] EWCA Civ 232 (06 April 2017) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2017/232.html Cite as: [2017] STI 1099, [2017] 4 All ER 188, [2017] BTC 9, [2017] STC 1159, [2017] EWCA Civ 232, [2017] 4 WLR 164, [2017] WLR(D) 247 |
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ON APPEAL FROM UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
Mr Justice Newey and Judge Charles Hellier
FTC/64/2014
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE PATTEN
and
LORD JUSTICE BRIGGS
____________________
MR JULIAN BLACKWELL |
Appellant |
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- and - |
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THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS |
Respondent |
____________________
for the Appellant
Mr Michael Jones (instructed by HM Revenue & Customs Solicitors)
for the Respondent
Hearing dates : 28 March 2017
____________________
Crown Copyright ©
Lord Justice Briggs :
Introduction
"(1) Except as otherwise expressly provided, the sums allowable as a deduction from the consideration in the computation of the gain accruing to a person on the disposal of an asset shall be restricted to –
(a) The amount or value of the consideration, in money or money's worth, given by him or on his behalf wholly and exclusively for the acquisition of the asset, together with the incidental costs to him of the acquisition or, if the asset was not acquired by him any expenditure wholly and exclusively incurred by him in providing the asset,
(b) The amount of any expenditure wholly and exclusively incurred on the asset by him or on his behalf for the purpose of enhancing the value of the asset, being expenditure reflected in the state or nature of the asset at the time of the disposal, and any expenditure wholly and exclusively incurred by him in establishing, preserving or defending his title to, or to a right over, the asset,
(c) The incidental costs to him of making the disposal.
(2) …"
"4. Mr Blackwell held class A (and other) shares in BP Holdings such as would enable him to veto a special resolution, including one to approve or facilitate a takeover of the company. In 2003, following an unsuccessful takeover attempt by Taylor & Francis Group plc ("Taylor & Francis"), Mr Blackwell entered into an agreement ("the 2003 agreement") with Taylor & Francis to do and not to do certain things connected with his A shares in return for £1 million.
5. In 2006 John Wiley & Sons Inc ("Wiley") made an offer for BP Holdings for a much higher sum than Taylor & Francis had offered in 2003.
6. Mr Blackwell wished to accept Wiley's offer, but he was advised by his solicitors that the only way to avoid the risk of litigation was not to take any step in respect of the offer.
7. Taylor & Francis offered to release Mr Blackwell from the 2003 agreement if he paid them £25 million.
8. Mr Blackwell decided that it was necessary to make that payment in order to allow the Wiley deal to go through. He believed that the payment would enable the Wiley bid to be accepted.
9. On 17 November 2006 Mr Blackwell entered into a new agreement ("the 2006 agreement") with Taylor & Francis whereby he was released from his undertakings under the 2003 agreement. In return he paid Taylor & Francis £25 million of which Wiley provided £7.5 million and he provided £17.5 million. The deduction was sought for the £17.5 million.
10. The FTT found that Mr Blackwell held a rational and well founded belief that the 2003 agreement amounted to an impediment to his acting freely to vote his shares as he would have wished when the Wiley bid came to his attention: the threat of litigation, whether in the form of an attempt to obtain an injunction or otherwise, could well have had a detrimental effect on the prospect of a successful acceptance of the take over or at least have delayed it. The FTT considered that it was easy to see that the price of the shares could have been affected or even that the deal could have failed altogether."
Limb 1
"The capital gains tax was created to operate in the real world, not that of make-belief. As I said in Aberdeen Construction Group Limited. v Inland Revenue Commissioners [1978] AC 885, it is a tax on gains (or I might have added gains less losses), it is not a tax on arithmetical differences. To say that a loss (or gain) which appears to arise at one stage in an indivisible process, and which is intended to be and is cancelled out by a later stage, so that at the end of what was bought as, and planned as, a single continuous operation, there is not such a loss (or gain) as the legislation is dealing with, is in my opinion well and indeed essentially with the judicial function."
"Between juristic or arithmetical realities on one hand and commercial realities on the other."
"To describe the making of the loans, or their waiver, as expenditure within the meaning of para 4(1)(b) of Sch6 is however, quite unacceptable. The making of the loan created rights and obligations and the waiver constituted an abandonment of the rights but in neither case was there the kind of expenditure with which para 4(1)(b) is concerned. In any event, by no reasonable stretch of the imagination is it possible to classify the making of the loans or their waiver as expenditure wholly and exclusively incurred "on" the shares and I find it impossible to say that either were reflected in the state or nature of the shares which were sold. The waiver of the loans may well have enhanced their value but what para 4(1)(b) is looking for is, as the result of the relevant expenditure, an identifiable change for the better in the state or nature of the asset, and this must be a change distinct from the enhancement of value."
"It is clear from the provision (s.38) that Parliament did not intend that all expenditure incurred for the purpose of enhancing the value of an asset should be deductible in computing capital gains. Only such expenditure as would be reflected in the 'state and nature of the asset at the time of the disposal' was to be allowed. Further, 'state and nature' for these purposes must be something other than merely the value of the asset – otherwise this phrase would add nothing to the immediately preceding words. In this case the capital contributions did not result in any increase in the number of shares in issue, or result in any change in the rights or restrictions attaching to the shares. The only effect of the capital contributions was to increase the surplus of the company – which would increase the amount available for distribution to shareholders, and therefore presumably the value of the shares. We do not consider this sufficient for the expenditure on the capital contributions to be reflected in the state and nature of the shares, either at the time the expenditure was incurred or at any time subsequently."
Limb 2
Patten LJ
Longmore LJ