“Meaning of “outstanding”: quasi-loans (1) An amount of a quasi-loan is outstanding for the purposes of paragraphs 1… if the initial debt amount exceeds the repayment amount. (2) In sub-paragraph (1) “initial debt amount”, in relation to a quasi-loan, means the total of- (3) For the purposes of sub-paragraph (2)- (4) In sub-paragraph (1) “repayment amount”, in relation to a quasi-loan, means the total of… (a) an amount equal to the value of the acquired debt (see paragraph 2(2))… (a) where the acquired debt is a right to payment of an amount, the “value” of the debt is that amount… (b) payment made in money(if any) made by the relevant person on or after17 March 2016 by way of repayment of the initial debt amount...” (Emphasis added.)
“(a) there is any connection (direct or indirect) between the payment or transfer and a tax avoidance arrangement (other than the arrangement under which the quasi-loan was made)…” (Emphasis added.)
“it was in my head… because I was time limited really at that stage to try and find someone who would be suitable. In my line of work bringing someone in, as a dentist, bringing someone into your practice that you can trust and know and I had that experience in the past with someone who was very damaging to my dental practice. And at that short notice to try and find someone in such an important area really wasn’t a consideration as far as I’m concerned, so I don’t have any physical evidence of them trying to find someone else. It was just merely the fact that I was time limited and I’m trying to find someone who I could trust to take over my patients to come into the practice.” (2) He then accepted that there was no real consideration given to anyone other than the Trustee acquiring shares in the appellant. He said that was because there was no time; selling a dental practice takes time. (3) It was put to him that he did not approach a commercial lender like a high street bank, for example, and ask if he could borrow secured on the “loans”
“Should a relevant individual not have available cash to repay their debt to trust for 2019 Loan Charge purposes, a trustee financing option may be available (subject to the particular circumstances) that could enable individuals to have access to relevant cash funds for use in this regard. Fees for this financing option will be 3% (no VAT) and payable by the relevant individual.”
“I do not have the required amount of cash to enable me to make cash payment of the debts in question. However, I do personally own assets specifically shares in Grand Smile Design Limited which to my knowledge are worth at least the value of the debts that I owe to the Trust and that I would be willing to transfer to the Trust in settlement of my debts.” (Emphasis added.)
“Establishing a value range for the£100 £1 Ordinary shares in the Company…with a view to a potential future sale of some of the shares to a connected trust…”
“a general rule of statutory construction and an unblinkered approach to the analysis of the facts. The ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically.”
“37. The relevant authorities were reviewed by the Supreme Court in Rossendale[2022] AC 690 , from which the following guidance may be drawn: i) The approach to the construction of taxing statutes stemming from Ramsay is well-settled. It is based upon the modern purposive approach to the interpretation of all legislation (para 9). (ii)… (iii) As explained in para 12: “Another aspect of the Ramsay approach is that, where a scheme aimed at avoiding tax involves a series of steps planned in advance, it is both permissible and necessary not just to consider the particular steps individually but to consider the scheme as a whole. Again, this is no more than an application of general principle. Although a statute must be applied to a state of affairs which exists, or to a transaction which occurs, at a particular point in time, the question whether the state of affairs or the transaction was part of a preconceived plan which included further steps may well be relevant to whether the state of affairs or transaction falls within the statutory description, construed in the light of its purpose. In some of the cases following Ramsay, reference was made to a series of transactions which are ‘pre-ordained’: see eg Inland Revenue Comrs v Burmah Oil Co Ltd[1982] STC 30 , 33 (Lord Diplock); Furniss v Dawson[1984] AC 474 , 527 (Lord Brightman). As a matter of principle, however, it is not necessary in order to justify taking account of later events to show that they were bound to happen - only that they were planned to happen at the time when the first transaction in the sequence took place and that they did in fact happen: see [Scottish Provident] at [23], where the House of Lords held that a risk that a scheme might not work as planned did not prevent it from being viewed as a whole, as it was intended to operate.” (iv) The Ramsay principle is an application of general principles of statutory interpretation (para 13). As Lord Nicholls put it in [Barclays]at para 32, the essence of the approach is: “to give the statutory provision a purposive construction in order to determine the nature of the transaction to which it was intended to apply and then to decide whether the actual transaction (which might involve considering the overall effect of a number of elements intended to operate together) answered to the statutory description.”
“62. The significance of the Ramsay case was to do away with both those features. First, it extended to tax cases the purposive approach to statutory construction which was orthodox in other areas of the law. Secondly, and equally significantly, it established that the analysis of the facts depended on that purposive construction of the statute. Thus, in Ramsay itself, the terms ‘loss’ and ‘gain’, as used in capital gains tax legislation, were purposively construed as referring to losses and gains having a commercial reality. Since the facts concerned a composite transaction forming a commercial unity, with the consequence that the commercial significance of what had occurred could only be determined by considering the transaction as a whole, the statute was construed as referring to the effect of that composite transaction. As Lord Wilberforce said, at p 326: ‘The capital gains tax was created to operate in the real world, not that of make-belief. As I said in Aberdeen Construction Group Ltd v Inland Revenue Comrs[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 within the judicial function.’ “63. ‘Unfortunately’, the Committee commented in Barclays Mercantile at para 34, ‘the novelty for tax lawyers of this exposure to ordinary principles of statutory construction produced a tendency to regard Ramsay as establishing a new jurisprudence governed by special rules of its own’. In the Barclays Mercantile case the Committee sought to achieve ‘some clarity about basic principles’ (para 27). It summarised the position at para 32: [They set out [32] of Barclays] As Lord Nicholls of Birkenhead said in MacNiven v Westmoreland Investments Ltd[2003] 1 AC 311 , 320, para 8: “The paramount question always is one of interpretation of the particular statutory provision and its application to the facts of the case”’. As the Committee commented, this is a simple question, however difficult it may be to answer on the facts of a particular case. “64. This approach has proved to be particularly important in relation to tax avoidance schemes as a result of two factors identified in Barclays Mercantile at para 34. First, ‘tax is generally imposed by reference to economic activities or transactions which exist, as Lord Wilberforce said, “in the real world”’. Secondly, tax avoidance schemes commonly include ‘elements which have been inserted without any business or commercial purpose but are intended to have the effect of removing the transaction from the scope of the charge’. In other words, as Carnwath LJ said in the Court of Appeal in Barclays Mercantile,[2002] EWCA Civ 1853 ;[2003] STC 66 , para 66, taxing statutes generally ‘draw their life-blood from real world transactions with real world economic effects’. Where an enactment is of that character, and a transaction, or an element of a composite transaction, has no purpose other than tax avoidance, it can usually be said, as Carnwath LJ stated, that ‘to allow tax treatment to be governed by transactions which have no real world purpose of any kind is inconsistent with that fundamental characteristic’. Accordingly, as Ribeiro PJ said in Collector of Stamp Revenue v Arrowtown Assets Ltd [2003] HKCFA 46; (2003) 6 ITLR 454, para 35, where schemes involve intermediate transactions inserted for the sole purpose of tax avoidance, it is quite likely that a purposive interpretation will result in such steps being disregarded for fiscal purposes. But not always.”
“the need to focus carefully upon the particular statutory provision and to identify its requirements before one can decide whether circular payments or elements inserted for the purpose of tax avoidance should be disregarded or treated as irrelevant for the purposes of the statute.”
“..Courts are entitled to look at a pre-arranged tax avoidance scheme as a whole. It matters not whether the parties’ intention to proceed with a scheme through all its stages takes the form of a contractual obligation or is expressed only as an expectation without contractual force”. (2) That does not mean that transactions or relevant steps are to be treated as “shams” nor does it require going “behind a transaction for some supposed underlying substance”
“For instance, if the scheme has the apparently magical result of creating a loss without the taxpayer suffering any financial detriment, is this artificial loss a loss within the meaning of the relevant statutory provision?”
“cannot be understood as laying down factual pre-requisites which must exist before the court may apply the purposive, Ramsay approach to the interpretation of a taxing statute. That would be to misunderstand the nature of the decision in Ramsay.”
“The paramount question always is one of interpretation of the particular statutory provision and its application to the facts of the case. Further, as I have sought to explain, Ramsay did not introduce a new legal principle. It would be wrong, therefore, to set bounds to the circumstances in which the Ramsay approach may be appropriate and helpful. The need to consider a document or transaction in its proper context, and the need to adopt a purposive approach when construing taxation legislation, are principles of general application. Where this leads depends upon the particular set of facts and the particular statute….”
“The point to hold onto is that something may be real for one purpose but not for another”
“The limitations of the Ramsay principle therefore arise out of the paramount necessity of giving effect to the statutory language. One cannot elide the first and fundamental step in the process of construction, namely, to identify the concept to which the statute refers. I readily accept that many expressions used in tax legislation (and not only in tax legislation) can be construed as referring to commercial concepts and that the courts are today readier to give them such a construction than they were before the Ramsay case. But that is not always the case. Taxing statutes often refer to purely legal concepts…If a transaction falls within the legal description, it makes no difference that it has no business purpose. Having a business purpose is not part of the relevant concept… Even if a statutory expression refers to a business or economic concept, one cannot disregard a transaction which comes within the statutory language, construed in the correct commercial sense, simply on the ground that it was entered into solely for tax reasons. Business concepts have their boundaries on this topic.”
“we do not think that it was intended to provide a substitute for a close analysis of what the statute means. It certainly does not justify the assumption that an answer can be obtained by classifying all concepts a priori as either "commercial" or "legal". That would be the very negation of purposive construction: see Ribeiro PJ in Arrowtown at paras 37 and 39….”
“….when the question of carrying out a genuine commercial transaction, as this was, is reviewed, the fact that there are two ways of carrying it out – one by paying the maximum amount of tax, the other by paying no, or much less, tax - it would be quite wrong, as a necessary consequence, to draw the inference that, in adopting the latter course, one of the main objects is, for the purposes of this section, avoidance of tax. No commercial man in his senses is going to carry out a commercial transaction except upon the footing of paying the smallest amount of tax that he can. The question whether in fact one of the main objects was to avoid tax is one for the Special Commissioners to decide upon a consideration of all the relevant evidence before them and the proper inferences to be drawn from that evidence.”
“There are, however, discernible distinctions between a transaction which is a sham, a transaction which effects the evasion of tax, a transaction which mitigates tax and a transaction which avoids tax… The material distinction in the present case is between tax mitigation and tax avoidance. A taxpayer has always been free to mitigate his liability to tax… Income tax is mitigated by a taxpayer who reduces his income or incurs expenditure in circumstances which reduce his assessable income or entitle him to reduction in his tax liability. Section 99 does not apply to tax mitigation because the taxpayer’s tax advantage is not derived from an “arrangement” but from the reduction of income which he accepts or the expenditure which he incurs. Thus when a taxpayer executes a covenant and makes a payment under the covenant he reduces his income. If the covenant exceeds six years and satisfies certain other conditions the reduction in income reduces the assessable income of the taxpayer. The tax advantage results from the payment under the covenant. When a taxpayer makes a settlement, he deprives himself of the capital which is a source of income and thereby reduces his income. If the settlement is irrevocable and satisfies certain other conditions the reduction in income reduces the assessable income of the taxpayer. The tax advantage results from the reduction of income. Section 99 does apply to tax avoidance. Income tax is avoided and a tax advantage is derived from an arrangement when the taxpayer reduces his liability to tax without involving him in the loss or expenditure which entitles him to that reduction. The taxpayer engaged in tax avoidance does not reduce his income or suffer a loss or incur expenditure but nevertheless obtains a reduction in his liability to tax as if he had.”
“There is nothing magical about tax mitigation whereby a taxpayer suffers a loss or incurs expenditure in fact as well as in appearance”
“Like my noble and learned friend, Lord Templeman, I approach this case on the basis that there is a fundamental difference between tax mitigation and unacceptable tax avoidance. Examples of the former have been given in the speech of my noble and learned friend. These are cases in which the taxpayer takes advantage of the law to plan his affairs so as to minimise the incidence of tax. Unacceptable tax avoidance typically involves the creation of complex artificial structures by which, as though by the wave of a magic wand, the taxpayer conjures out of the air a loss, or a gain, or expenditure, or whatever it may be, which otherwise would never have existed. These structures are designed to achieve an adventitious tax benefit for the taxpayer, and in truth are no more than raids on the public funds at the expense of the general body of taxpayers, and as such are unacceptable. Again, examples have been given in the speech of my noble and learned friend. The question in the present case is into which of these two categories the transaction under consideration falls.”
“[ Counsel for HMRC submitted that] ... tax avoidance was to be distinguished from tax mitigation. The hallmark of tax avoidance is that the taxpayer reduces his liability to tax without incurring the economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such reduction in his tax liability. The hallmark of tax mitigation, on the other hand, is that the taxpayer takes advantage of a fiscally attractive option afforded to him by the tax legislation, and genuinely suffers the economic consequences that Parliament intended to be suffered by those taking advantage of the option. ... My Lords, I am content for my part to adopt these propositions as a generally helpful approach to the elusive concept of “tax avoidance”, the more so since they owe much to the speeches of Lord Templeman and Lord Goff of Chieveley in Ensign Tankers (Leasing) Ltd. v. Stokes 64 TC 617,[1992] 1 AC 655 at pages 675C-676F and 681B-E. One of the traditional functions of the tax system is to promote socially desirable objectives by providing a favourable tax regime for those who pursue them. Individuals who make provision for their retirement or for greater financial security are a familiar example of those who have received such fiscal encouragement in various forms over the years. This, no doubt, is why the holders of qualifying policies, even those issued by non-resident companies, were granted exemption from tax on the benefits received. In a broad colloquial sense tax avoidance might be said to have been one of the main purposes of those who took out such policies, because plainly freedom from tax was one of the main attractions. But it would be absurd in the context of s 741 to describe as tax avoidance the acceptance of an offer of freedom from tax which Parliament has deliberately made. Tax avoidance within the meaning of s 741 is a course of action designed to conflict with or defeat the evident intention of Parliament.” (Emphasis added.)
“In our society, a great deal of intellectual effort is devoted to tax avoidance. The most sophisticated attempts of the Houdini taxpayer to escape from the manacles of tax (to borrow a phrase from the judgment of Templeman LJ in [Ramsay][1979] 1 WLR 974 , 979) generally take the form described in [Barclays], para 34: ‘... structuring transactions in a form which will have the same or nearly the same economic effect as a taxable transaction but which it is hoped will fall outside the terms of the taxing statute. It is characteristic of these composite transactions that they will include elements which have been inserted without any business or commercial purpose but are intended to have the effect of removing the transaction from the scope of the charge.’”
“The courts have long since insisted that fiscal consequences correspond to real consequences. Every tax avoidance scheme involves a trick and a pretence. It is the task of the revenue to unravel the trick and the duty of the court to ignore the pretence. In the present case the principal trick employed consisted of circular, self-cancelling payments of£64,125,000 . The pretence was that the investors were expending£64,125,000 . The trick of circular, self-cancelling payments with matching receipts and payments was rejected … The authorities disclose that unacceptable tax avoidance schemes exhibit several similar or identical characteristics. A scheme may of course include embellishments designed to avoid the mistakes of earlier schemes. It is a common characteristic of a scheme that, considered as a whole, the results claimed are too good to be true … It is a common characteristic that some steps in the scheme are preordained though not necessarily contractual….in reality recourse to the investors will never be made. Title to the money circulated will be produced by Hill Samuel only for the purpose of steps which ensure that in practice the money will come back to Hill Samuel immediately.”
‘(a) Save in 'obvious' cases, ascertaining the object or purpose of something involves an inquiry into the subjective intentions of the relevant actor. (b) Object or purpose must be distinguished from effect. Effects or consequences, even if inevitable, are not necessarily the same as objects or purposes. (c) Objective intentions are not limited to conscious motives. (d) Further, motives are not necessarily the same as objects or purposes. (e) 'Some' results or consequences are 'so inevitably and inextricably involved' in an activity that, unless they are merely incidental, they must be a purpose for it. (f) It is for the fact finding tribunal to determine the object or purpose sought to be achieved, and that question is not answered simply by asking the decision maker.’
“Your Lordships have been referred to what may be regarded as a seminal decision of this House in Mallalieu v Drummond[1983] 2 AC 861 and much argument has been addressed to the question whether the purpose of the particular payment falls to be ascertained objectively or by reference only to the subjective intention of the payer. For my part, I think that the difficulties suggested here are more illusory than real. The question in each case is what was the object to be served by the disbursement or expense? As was pointed out by Lord Brightman in Mallalieu's case, this cannot be answered simply by evidence of what the payer says that he intended to achieve. Some results are so inevitably and inextricably involved in particular activities that they cannot but be said to be a purpose of the activity. Miss Mallalieu's restrained and sober garb inevitably served and cannot but have been intended to serve the purpose of preserving warmth and decency and her purpose in buying cannot but have been, in part at least, to serve that purpose whether she consciously thought about it or not.” (Emphasis added)
“Affected scheme users can avoid the loan charge by repaying the loan and replacing it with a commercial loan”. (2) It was stated in a debate on29 January 2019 on the loan charge that: “It allowed three years for individuals to clean up the loan – if they were loans, they could be refinanced on a proper, commercial basis…”. (3) It was made clear by Jesse Norman, Financial Secretary to the Treasury, in an answer to a Parliamentary question on27 April 2021 , that in relation to non-genuine arrangements: “…there have been numerous cases in which [HMRC] has made arrests or prosecuted people in relation to fraud, and particularly in relation to disguised remuneration loan-busting schemes.”
“The purpose of the legislation is not one which can be sensibly impugned; it is to deprive tax avoidance schemes of oxygen, and to ensure that people and companies bear their fair burden of tax, rather than throwing unfair weight on others – in particular those who do not have the opportunity to use such schemes.” (2) In Zeeman v HMRC[2020] EWHC 794 (Admin) ,[2020] STC 828 (“Zeeman”), where, at [80], the Court of Appeal said this: “Mr Gilbert’s and Ms McGeehan’s evidence on behalf of HMRC as to the purpose of the legislation was clear, and as Cockerill J said in Cartref, at [225], it cannot be sensibly impugned. Parliament wished to draw a line under this type of tax avoidance. It intended to ensure that individuals (and companies) bear their fair burden of tax, rather than throwing an unfair burden on others who do not arrange their affairs in the same way.”