Kevin John Pitt v The Commissioners for HMRC

£622,492.07 from KPPD Ltd; and

£388,640.36 from Columnstyle Ltd.

£6,000,000 to KPPD Ltd. The correct amount should have been £600,000 and the banking error was corrected the following day on 5 March 1999. (In the rest of this decision, we propose to ignore the banking error which was made as it has no relevance to the matters in issue and we will assume that £600,000 was transferred by the Appellant to KPPD Ltd on 4 March 1999); and

£400,000 to Columnstyle Ltd.

£600,000 as regards KPPD Ltd; and

£400,000 as regards Columnstyle Ltd.

the Company was defined as KPPD Ltd and Certificate was defined as “a certificate for the Loan Notes issued in accordance with clause 6.1 or any replacement thereof from time to time issued under clause 6.3”;

Interest Payment Date was defined as “the seventh day following the date of issue of a Loan Note and each subsequent anniversary of that day”;

Loan Notes were defined as “the £10 Loan Notes of the Company constituted by this Instrument or as the case may be the amount thereof for the time being issued and outstanding and “Loan Note” means each such £10 Loan Note”;

Noteholder was defined as “a person for the time being entered in the Register as a holder of a Loan Note or Loan Notes”;

Redemption Date was defined as “the thirtieth anniversary of the date of issue of a Loan Note or, if such date falls on a day which is not a Business Day, the date of the next succeeding Business Day” and Business Day was defined as “a day (other than a Saturday or a Sunday) on which banks are generally open for business in London”;

Redemption Price was defined as “an amount equal to £1.20 per £1 par value”;

clause 2.1 provided that the principal amount was limited to £600,000 (for Columnstyle Ltd the principal amount was £400,000);

clause 2.4 provided that the Loan Notes were to rank pari passu as unsecured obligations of the Company;

clause 3.1 provided that the Loan Notes were to carry interest at the rate of 0.5% per annum;

clause 3.2 provided that the interest, less any tax, was to be payable annually in advance on the Interest Payment Date;

clause 4.1 provided that, subject to the provisions of clause 5, the Loan Notes were to be redeemed by the Company on the Redemption Date by payment of the Redemption Price;

clause 4.3 provided that, once redeemed in full by the Company, the Loan Notes were to be cancelled and not re-issued;

clause 5.1 provided that the Loan Notes were to become immediately repayable at the Redemption Price at the option of the Noteholder upon the occurrence of various events of default or insolvency;

clause 6.1 provided that the Loan Notes were to be issued in integral multiples of £10 and a duly executed Certificate was to be issued by the Company to each and every Noteholder for the total amount of Loan Notes registered in his name;

clause 7.1 provided that a register (the “Register”) was to be kept by the Company which was to include:

clause 11.1 provided that the Loan Notes were transferrable in nominal amounts and integral multiples of £10.

£600,000 of Loan Notes in KPPD Ltd; and

£400,000 of Loan Notes in Columnstyle Ltd.

the Appellant;

Mr Charles William Olley; and

Mr Richard James Downing

the Trust Fund was defined at clause 1(2) as £100 and any other property transferred to the Trustees to hold on the terms of the KJP Settlement and all property from time to time representing the above;

the Trust Property was defined in clause 1(3) as any property comprised in the Trust Fund;

the Trust Period was defined in clause 1(4) as the period of 80 years beginning with the date of the KJP Settlement, being 29 March 1999;

the Beneficiaries were defined in clause 1(5) as:

clause 2(1) provided that, subject to the overriding powers in clause 3, the Trustees were to pay the income of the Trust Fund to the Appellant during his life;

clause 2(2) provided that, subject to clause 2(1), during the Trust Period, the Trustees were to pay and apply the income of the Trust Fund to or for the benefit of any Beneficiaries as the Trustees thought fit;

under clause 3, the Trustees were given various overriding powers, including a power of appointment, a power to transfer Trust Property to new settlements and a power of advancement to any Beneficiary;

clause 4 provided that, subject to the foregoing clauses, the Trust Fund was to be held on trust for all grandchildren of the Appellant living at his death and, if more than one, in equal shares absolutely; and

clause 5 gave the Appellant the power to appoint trustees during his life.

the Appellant executed a deed of gift assigning £600,000 in principal amount of the Loan Notes issued by KPPD Ltd to the Trustees of the KJP Settlement; and

KPPD Ltd issued a Certificate certifying that the Trustees of the KJP Settlement were the registered holders of £600,000 in principal amount of the Loan Notes issued by KPPD Ltd.

the Trust Fund was defined at clause 1(2) as £100, and any other property transferred to the Trustees to hold on the terms of the Children’s Settlement and all property from time to time representing the above;

the Trust Property was defined in clause 1(3) as any property comprised in the Trust Fund;

the Trust Period was defined in clause 1(4) as the period of 80 years beginning with the date of the Children’s Settlement, being 29 March 1999;

the Accumulation Period was defined in clause 1(5) as the period of 21 years beginning from the date of the Children’s Settlement, being 29 March 1999;

the Beneficiaries were defined in clause 1(6) as:

Interest in Possession was defined in clause 7 as having the same meaning as in the Inheritance Tax Act 1984;

the Principal Beneficiaries were defined in clause 1(9) as Leeanna and Robin Pitt and any other child of the Appellant born:

clause 2(1) provided that, subject to the overriding powers in clause 3, the Trust Fund was to be divided into equal shares (the “Shares”) so that there would be one Share for each Principal Beneficiary;

clause 2(2) provided that, while a Principal Beneficiary was living and under the age of 25, the Trustees were able to apply the income of his or her Share for the maintenance, education or benefit of any of the Principal Beneficiaries who were under the age of 25. Subject to that, the Trustees were to accumulate the income of the Share during the Accumulation Period and add it to the Trust Fund. Subject to that, section 31 of the Trustee Act 1925 was to apply to the Share (with certain modifications);

clause 2(3) provided that the Trustees were to pay the income of the Share to the Principal Beneficiary during his or her life if he or she attained the age of 25;

clause 2(4) provided that, subject to the foregoing, during the Trust Period, the Trustees were to pay or apply the income of the Share to or for the benefit of any Beneficiaries as the Trustees thought fit;

under clause 3, the Trustees were given various overriding powers, including a power of appointment, a power to transfer Trust Property to a new settlement, and a power of advancement;

clause 4 provided that the overriding powers in clause 3 were to be exercised over Trust Property only in specified circumstances;

clause 5 was a default clause and provided that, subject to the foregoing, the Trust Fund was to be held on trust for Leeanna and Robin Pitt in equal shares absolutely;

clause 6 gave the Appellant the power to appoint trustees during his life; and

under clause 8, the Appellant and his spouse were excluded from the Settlement and no power conferred by the Settlement was exercisable, and no provision was able to operate, so as to allow Trust Property or its income to become payable to or applicable for the benefit of the Appellant or the spouse of the Appellant in any circumstances.

the Appellant executed a deed of gift assigning £150,000 in principal amount of the Loan Notes issued by Columnstyle Ltd to the Trustees of the Children’s Settlement; and

Columnstyle Ltd issued a Certificate certifying that the Trustees of the Children’s Settlement were the registered holders of £150,000 in principal amount of the Loan Notes issued by Columnstyle Ltd.

under the rubric “Post-cessation expenses and losses on relevant discounted securities etc” in box 15.11, an amount of £694,684 was entered;

the tax return software, based upon the entries in the Return, calculated the tax repayment due to the Appellant to be £81,873.20 and this amount was shown in box 18.3; and

accompanying the Return were two explanatory notes providing additional information relating to the entry in box 15.11 and the calculation of market value of the Loan Notes assigned.

the Appellant was in the habit of consulting his accountants, PB, on a quarterly basis to discuss his and the companies’ financial positions. Those discussions generally included a review of his and the companies’ tax affairs;

PB were not themselves tax specialists and were accustomed to receiving approaches from other advisers with tax-efficient products and ideas which PB might wish to suggest to their clients. One such advisor was the accounting firm Haines Watts (“HW”);

On 15 December 1998, at the suggestion of Mr Olley of PB, the Appellant met with a Mr Javed Siddiqui of HW. In the course of that meeting, Mr Siddiqui became aware that the Appellant was owed significant sums by the companies by way of balances on his director’s loan accounts with the companies;

following that meeting, on 6 January 1999, Mr Olley sent Mr Siddiqui some further financial information in relation to the companies and the Appellant’s director’s loan accounts with the companies;

on 13 January 1999, Mr Siddiqui, the Appellant and Mr Olley attended a conference with Mr Michael Sherry, a tax counsel, which had been arranged by Mr Siddiqui to discuss the proposal to enter into the transactions which are the subject of these proceedings;

following that conference, the Appellant decided to proceed with the transactions and accordingly there was a second meeting between the Appellant, Mr Olley and Mr Siddiqui at some point prior to the end of February 1999, whereupon HW prepared the documentation required to enable the Appellant to replace part of the balances on his director’s loan accounts with the companies with the Aggregate Loan Notes;

on 18 March 1999, following the issue of the Aggregate Loan Notes on 5 March 1999, the Appellant and Mr Olley attended a meeting at the Appellant’s solicitors, Nockolds, to discuss the creation of trusts to be settled by the Appellant for the benefit of himself and his family. Nockolds advised that the Appellant should settle two trusts – an interest in possession trust (which is the KJP Settlement) and an accumulation and maintenance trust (which is the Children’s Settlement); and

as already noted in paragraphs 16 to 18 above, on 29 March 1999, the Settlements were established and the Loan Notes, comprising £750,000 in principal amount of the Aggregate Loan Notes and with an aggregate market value of £55,316, were transferred to the Settlements.

the Loan Notes were “relevant discounted securities” for the purposes of Schedule 13;

for the purposes of Schedule 13:

the Loan Notes were “relevant discounted securities” for the purposes of Schedule 13;

each Settlement was connected with the Appellant for the purposes of Section 839 and paragraph 8(3) of Schedule 13; and

the market value of the Loan Notes on 29 March 1999 was £55,316.

the Appellant did acquire the Loan Notes; and

the Appellant paid the aggregate amount of £750,000 in respect of his acquisition of the Loan Notes.

the Respondents were entitled to give the Follower Notice to the Appellant only if:

the Respondents were entitled to issue the Penalty Assessment only if:

if the Respondents were entitled to issue the Penalty Assessment, they were entitled to reduce the penalty imposed on the Appellant to a figure of no less than 10% to reflect the Appellant’s co-operation with them in one or more of five specified ways.

each of the requirements set out in paragraph 44(1) above apart from the one set out in paragraph 44(1)(c) above is satisfied; and

if the Respondents were entitled to give the Follower Notice to the Appellant, the Appellant did fail to take the necessary corrective action in respect of the tax advantage sought to be denied by the Follower Notice within the time allowed by the legislation.

the decision cited by the Respondents in the Follower Notice as the “relevant judicial ruling” meets the conditions to qualify as such, which goes to the question of whether the Respondents were entitled to give the Follower Notice to the Appellant at all; and

if the Respondents were entitled to give the Follower Notice to the Appellant:

whether the Appellant acquired the Loan Notes;

if the Appellant did acquire the Loan Notes, whether the Appellant sustained a loss on the transfer of the Loan Notes to the Trustees of each of the Settlements;

whether the conditions for issuing the Follower Notice and the Penalty Assessment to the Appellant were satisfied; and

if so, the quantum of the penalty due.

the question of whether or not, if the Appellant did acquire the Loan Notes, he had paid £750,000 in respect of that acquisition, which we have recorded in paragraph 42(2) above as being a point of dispute between the parties; and

the agreed issue of whether or not, if the Appellant did acquire the Loan Notes, he had sustained a loss on the transfer of the Loan Notes, as set out in paragraph 47(2) above.

the way in which the agreed issue in paragraph 47(2) had been framed suggested that:

the Respondents’ position at the hearing suggested that:

the agreed issue in paragraph 47(2) above was whether the Appellant had sustained a loss for the purposes of paragraph 2 of Schedule 13;

the question of whether the Appellant had paid £750,000 in respect of the acquisition of the Loan Notes went directly to the agreed issue; and

a fundamental plank of the Respondents’ argument in relation to the question described in paragraph 51(2) above was that the Appellant had not sustained a real commercial loss on the transfer of the Loan Notes,

the Appellant was aware of how the Respondents intended to argue their position in relation to the agreed issue in paragraph 47(2) above well before the hearing, by virtue of the terms of the statement of case and the Respondents’ skeleton argument; and

the Appellant could have been in no doubt before the hearing that the fact that he had not sustained a real commercial loss from the transactions was a matter which needed to be addressed in the context of that agreed issue.

various documents contained in the documents bundle; and

witness evidence from the Appellant and Mr Olley on behalf of the Appellant and Ms Sara McCrorie on behalf of the Respondents.

a file note prepared by Mr Olley of a meeting with Nockolds on 18 March 1999, attended by the Appellant, Mr Olley and two representatives of Nockolds. The file note made no mention of the Loan Notes or the tax benefits which might accrue to the Appellant from transferring the Loan Notes to trusts but referred merely to the fact that transferring the assets to trusts would protect some of the Appellant’s assets for the long-term benefit of the Appellant’s family;

the Return, which showed that the Appellant had taxable income in the Tax Year of £728,242 in aggregate. This meant that, after deducting the loss of £694,684 claimed in respect of the transactions making up the arrangements, the Appellant’s taxable income for the Tax Year was £33,558 in aggregate;

a letter from the Respondents to the Appellant of 10 May 2001, in which the Respondents asked for:

a letter from Mr Olley to the Respondents on 11 June 2001 in which:

a letter from the Respondents to Mr Olley of 8 November 2001 in which the Respondents refused to accept that the loss claimed by the Appellant had arisen and set out the basis for that refusal;

a letter from Mr Olley to the Respondents of 13 March 2002 which:

a letter from the Respondents to Mr Olley of 12 September 2002 in which the Respondents confirmed that no further information was required but stated that discussions with other companies in relation to similar transactions in relevant discounted securities were ongoing and that therefore proposing that the enquiry into the Return be kept open;

a letter from Mr Olley to the Respondents of 9 October 2002 in which Mr Olley referred to the fact that he was uncertain at that point whether the Respondents might still require further information from the Appellant in relation to the transactions;

a letter from the Respondents to Mr Olley of 23 October 2002 in which the Respondents agreed that the enquiry into the transactions was ongoing and stated that “discussions with other persons is ingoing in this regard and I regret that it may be sometime before the matter is finalised”;

a letter from the Respondents to Mr Olley of 29 April 2004 in which the Respondents confirmed that correspondence had been continuing with Mr Edwards and that there had been a recent case which might shed light on the issues which were in dispute between the parties and said that, on receipt of the decision in that case, its application to the facts in the Appellant’s case could be considered;

a letter from Mr Olley to the Respondents of 26 August 2004 in which Mr Olley suggested that the case to which the Respondents had been referring in their letter of 29 April 2004 was Campbell v Inland Revenue Commissioners [2004] STC (SCD) 396 (“Campbell”), and that, on the basis of the decision in Campbell, the loss made by the Appellant from the transactions should be allowed;

a letter from the Respondents to Mr Olley of 18 October 2006 in which the Respondents:

a letter from Mr Olley to the Respondents of 10 January 2007 in which Mr Olley:

a letter from the Respondents to Mr Olley of 26 March 2007 in which the Respondents agreed to hold the enquiry into the transactions in abeyance pending the outcome of their discussions with Mr Edwards, as requested by Mr Olley;

a letter of 16 September 2010 from Mr Edwards to the Respondents attaching a letter of authority from the Appellant for HW to act on his behalf in relation to the claim for the loss from the transactions and an acknowledgement of receipt of that authority by the Respondents to Mr Edwards of 22 September 2010;

a letter from the Respondents to Mr Olley of 10 February 2012 in which the Respondents referred to the fact that, after a number of discussions with HW in relation to, inter alia, the transactions, HW were “considering the position”;

a letter from the Respondents to the Appellant of 11 May 2016 informing the Appellant that he was about to receive the Follower Notice and an accelerated payment notice in respect of the transactions - which were referred to in the letter as the “Haines Watts RDS Scheme” - and providing the Appellant with information in relation to both notices;

the Follower Notice from the Respondents to the Appellant of 16 June 2016 in which, inter alia:

an accelerated payment notice of 16 June 2016 in which the transactions into which the Appellant had entered were identified by the Respondents as the “Haines Watts RDS Scheme”;

a letter from Mr Olley to the Respondents of 18 August 2016 containing representations on behalf of the Appellant to the effect that, inter alia, Audley was not a relevant judicial decision in relation to the Appellant’s facts;

a letter from the Respondents to the Appellant of 24 May 2017 in which the Respondents notified the Appellant that:

a letter from Mr Olley to the Respondents of 29 June 2017 in which the transactions into which the Appellant had entered were identified by Mr Olley as the “Haines Watts RDS Scheme” and in which Mr Olley asked the Respondents to give the Appellant additional time before issuing a penalty for his failing to take the necessary corrective action because the Appellant was taking advice in relation to whether or not Audley was a relevant judicial decision from Mr Edwards and Mr Edwards was on long-term sick leave and was not expected to be back until early August 2017;

a letter from the Respondents to PB of 5 July 2017 setting out the terms of the payment arrangements which the Appellant had made in order to comply with the accelerated payment notice;

a letter from the Respondents to PB of 17 July 2017 refusing to extend the deadline for the necessary corrective action to be taken following the rejection of the Appellant’s representations in relation to the Follower Notice;

a letter from the Respondents to PB of 18 July 2017 in which the Respondents noted that the deadline for the necessary corrective action had expired on 29 June 2017 and reminding the Appellant that, if he did not take the necessary corrective action by 8 August 2017, a penalty would be assessed in respect of that failure;

a letter from the Respondents to PB of 7 November 2017 in which the Respondents:

a letter from the Respondents to the Appellant of 18 April 2018 in which the Respondents explained that they were about to issue the Penalty Assessment and enclosing a schedule explaining how the penalty had been calculated and inviting the Appellant to send to the Respondents any other information which he considered to be relevant to the mitigation of the penalty which had not yet been taken into account.

he could not recollect the specific contents of the meetings with PB or HW but he did recall that, as a result of those meetings, HW had become aware of:

he had in the past invested in enterprise zones and film partnerships;

one of the reasons for his meeting with HW on 15 December 1998 was to discuss how he might mitigate his tax liability for the Tax Year through investing in a film partnership but that wasn’t the only reason. He also wished to take advice on how he might achieve the long-term commercial aims mentioned in paragraph 58(1)(c) above;

the main reason for his entering into the arrangements was to achieve the commercial aims described in paragraph 58(1)(c) above. He had understood that, by replacing the balances on his director’s loan accounts with the companies with the Loan Notes, the funds in question would be ring-fenced until his retirement. In other words, unlike the balances on his director’s loan accounts, which could be withdrawn at will and on demand, he would be precluded from extracting the monies outstanding under the Loan Notes until they matured 30 years after their issue date. As this date coincided with his expected retirement date, the funds would then be available when he needed them;

to his way of thinking, the balances on his director’s loan accounts were his money and could freely be used by him to meet his personal expenditure but, once he had subscribed for the Loan Notes, the subscription monies belonged to the companies and he could no longer access those monies to meet his personal expenditure. Instead, the monies remained available to the companies to be used in their respective businesses;

another commercial reason for the arrangements was that it offered him the ability to protect his assets from potential creditors. He had understood that placing assets into the Settlements would protect those assets from potential creditors. It was a little unclear as to precisely what the Appellant meant by this. In his witness statement, the suggestion was that the protection would be from the claims of business creditors but, at the hearing, he said that the protection he was seeking was not from business creditors but rather from potential claims by his wife as he anticipated at the relevant time that he would soon be getting divorced. He said at the hearing that:

given the commercial reasons for the transactions set out above, he saw the tax advantage arising out of the arrangements as being simply a collateral benefit and not the main purpose for his entering into the arrangements. He added that he had always viewed the arrangements as giving rise to a tax deferral as opposed to a permanent tax saving. This was because the Settlements would be subject to tax when the Loan Notes matured on the difference between the amount paid on redemption and the market value of the Loan Notes on the date of the transfers into the Settlements. The benefit that he derived in the Tax Year from the loss to which the arrangements gave rise would therefore ultimately be reversed. He accepted that:

However, he explained that, as a result of a group reorganisation which had taken place approximately 10 years ago, the companies were now grouped with a third company which was carrying on a trade and had substantial assets and that the intention and expectation was that that company would see to it that the companies were able to discharge the Loan Notes;

the Settlements had been established on the advice of Nockolds and HW had had nothing to do with them. They were established after the Loan Notes had been issued and HW’s role was over. Thus, he saw the issue of the Loan Notes and the subsequent gifts of the Loan Notes to the Trustees of the Settlements as two distinct transactions. HW advised him on the first of those, which involved replacing the on-demand director’s loans to the companies with 30-year Loan Notes whose maturity date would coincide with his retirement and then Nockolds advised him on the second of those, which was that, once the Loan Notes were issued, the best way of holding the Loan Notes would be to put them into two trusts, one for the benefit of his children and the other for the benefit of himself on his retirement;

however, in cross-examination by Mr Macklam, the Appellant conceded that:

he made various contradictory statements in relation to the market value of the Loan Notes on issue relative to the monies paid to the companies at the time of issue. At one point in his testimony, he agreed that the market value of the Loan Notes when they were issued was only a small fraction of the amount which had been paid to the companies at the time of issue but said that he didn’t care that there was such a large discrepancy because the monies were going back into his companies. At another, he that he had had no idea what the market value of the Loan Notes on issue actually was but that he didn’t care because the monies were going back into his companies. However, he was consistently clear that, whatever the market value of the Loan Notes was on issue, he would not have paid the amount which he had paid to the companies at the time of issue had the companies been owned by an unrelated party;

although he had been responsible for ensuring that the funding movements which took place on 4 March 1999 occurred and for signing the various transaction documents, he had not read the documents in any detail and had relied entirely on PB, HW and Nockolds to ensure that the transactions were properly implemented. He was aware that, by entering into the transactions comprising the arrangements, he would be able to shelter some of his taxable income in the Tax Year from a charge to tax by reason of a loss but he was not entirely sure whether that loss arose out of the first stage of the arrangements – i.e. replacing part of the balances on the director’s loan accounts with the Loan Notes - or the second stage of the arrangements – i.e transferring the Loan Notes to the Trustees of the Settlements by way of gift; and

he had not taken any corrective action following receipt of the Follower Notice (or the letter from the Respondents of 24 May 2017 confirming the Follower Notice following their consideration of the representations made on his behalf by Mr Olley) because he had taken advice from PB at the time and been “advised by PB that one or more of the conditions required to issue a follower notice had not been met”. That advice had been given orally and not in writing and he had not sought advice from any other professional adviser in connection with the Follower Notice.

he confirmed that:

he conceded that:

as regards the accounting for the Loan Notes in the companies, he said that:

he said that he agreed with the Appellant that, subject to any differences between the tax rate applicable to the Appellant in the Tax Year and the tax rate applicable to the Settlements in the tax year of assessment in which the Loan Notes were redeemed, the transactions merely gave rise to a tax deferral and not a permanent tax saving because:

he said that, once the Loan Notes were issued, the amounts subscribed for the Loan Notes were available to the companies for the full term of the Loan Notes but he conceded that the companies were under the control of the Appellant at all times and that it had always been open to the Appellant and the companies to negotiate an early redemption of the Loan Notes at their market value at any time before the specified maturity date. 

Fact: the only reason why the Appellant attended the meeting with HW on 15 December 1998 was to discuss a possible way of reducing his tax liability in respect of the Tax Year by investing in a film partnership and there was no other purpose to that meeting.

Reason: that was the testimony of Mr Olley (see paragraph 59(1)(a) above). Although the Appellant suggested in giving his oral evidence at the hearing that he also had commercial purposes in consulting HW (see paragraph 58(3) above), that was at odds with the evidence of Mr Olley and we do not accept that that was the case;

Fact: in the course of that meeting, when Mr Siddiqui ascertained more about the Appellant’s commercial profile, he proposed that another way of reducing the Appellant’s tax liability in respect of the Tax Year was a structure involving the subscription of relevant discounted securities at an over-value and the subsequent transfer of those securities to a connected person such as a trust settled by the holder of securities.

Reason: this was also the evidence of Mr Olley (see paragraph 59(1)(b) above);

Fact: the structure described above was an integrated whole – a single composite transaction – so that, once the Aggregate Loan Notes had been issued, there was no realistic possibility that they would not be transferred to a person connected with the Appellant such as the trustees of a trust settled by the Appellant. It follows that, by the time that the Aggregate Loan Notes were issued, it was already certain that the Aggregate Loan Notes would be transferred by way of gift to a person connected with the Appellant such as the Trustees of the Settlements. The only issues which were outstanding were:

Reason: that was also the evidence of Mr Olley – see paragraphs 59(1)(d) and 59(1)(g) above. It is, in any event, a natural inference to draw from the agreed facts;

Fact: at the time when the Aggregate Loan Notes were issued, the amount of the Aggregate Loan Notes to be transferred to the connected person in the Tax Year was dependent on the market value of the Aggregate Loan Notes and the taxable income of the Appellant, the aim being that sufficient of the Aggregate Loan Notes would be transferred for the loss on that proportion of the Aggregate Loan Notes to shelter almost all of the Appellant’s taxable income in the Tax Year and that the balance of the Aggregate Loan Notes would be transferred to the connected person in the tax year of assessment following the Tax Year. This was to be determined in discussion with HW.

Reason: that was also the evidence of Mr Olley – see paragraph 59(1)(g) above). It is also, in any event, a natural inference to draw from the agreed facts;

Fact: at the time when the Aggregate Loan Notes were issued, the precise form which the trusts whose trustees would be the connected person transferee would take was to be determined in discussion with Nockolds.

Reason: that was also the evidence of Mr Olley – see paragraphs 59(1)(d) and 59(2)(a) above). It is also, in any event, a natural inference to draw from the agreed facts;

Fact: the flow of funds which occurred on 4 March 1999 was almost entirely circular, the only difference being that, although the amounts paid by the companies in aggregate were exactly the same as the amounts paid to the companies in aggregate, there were some small rounding differences at the individual company level.

Reason: this is apparent from the agreed facts – see paragraphs 8 to 10 above;

all of the parties to the transactions – the Appellant, the companies and the Trustees of the Settlements – were connected.

Reason: this is apparent from the agreed facts – see paragraphs 6,7 and 16 to 18 above;

Fact: the sole purpose of the Appellant in entering into the transactions was to secure a loss under Schedule 13 in order to reduce his income tax liability in respect of the Tax Year. That tax advantage was the only reason why the transactions were implemented when they were and in the way they were. That is not to say that the transactions did not have enduring commercial effects or that those enduring commercial effects were not acceptable to the Appellant. However, those enduring commercial effects were merely consequences of the transactions and not part of the purposes of the transactions. They were, to borrow a phrase which has been used in a different context, no more than “icing on the cake” – convenient window-dressing by which the real only purpose of the transactions – the securing of the loss for tax purposes – could be secured in a manner which suited the Appellant.

A related conclusion of fact is that the issue of the Loan Notes to the Appellant followed by the transfer of the Loan Notes to the Trustees of the Settlements had no commercial or business purpose apart from the tax advantage which the Appellant hoped to obtain by taking those steps.

Reason: our first reason for reaching the conclusions set out above is the provenance of the transactions. The possibility of implementing the transactions was first mooted at the meeting which the Appellant had with HW and PB on 15 December 1998 to discuss how he might reduce his tax liability in respect of the Tax Year. That was the sole purpose of the meeting. The meeting was not to discuss any aim other than that (see paragraph 65(1) above).

A second reason for that conclusion is the Appellant’s admission in his witness statement to the effect that, had Mr Sherry not provided a favourable opinion in relation to the transactions, he would not have gone ahead. That showed in stark terms that the only reason for the transactions was the tax benefits to which they were expected to give rise. Tellingly, the Appellant did not say that, had Mr Sherry’s opinion been negative, he would have looked to achieve the same commercial purposes in another way.

The third reason for that conclusion is the total artificiality of the transactions when viewed in the light of both the actual commercial position at the time when it took place and the Appellant’s stated commercial purposes.

We should expand on that statement as follows.

The companies were at all times wholly-owned by the Appellant. This meant that, just before the transactions were implemented:

In the light of those realities, replacing £750,000 of the amounts outstanding on his director’s loan accounts with relevant discounted securities with a market value of £55,316 made no commercial sense. The monies paid to the companies by the Appellant at the time of issue remained accessible to the Appellant in their entirety because the Appellant controlled the companies. As such, the Appellant could easily have agreed with the companies to an early repayment of the securities at any stage at their then current market value. More significantly, the securities had a market value of only £55,316 and the difference between the monies paid into the companies at the time of issue and that amount continued to be reflected in the value of the Appellant’s equity holdings in the companies. In effect, by implementing the transaction which was the first step in the arrangements, the Appellant simply converted £694,684 of the balance on his director’s loan accounts in the companies into equity in the companies and £55,316 of the balance on his director’s loan accounts in the companies into the Loan Notes.

In the light of those facts, it is not surprising that:

This in turn demonstrates that, if the Appellant had wished to convert £55,316 of value in his director’s loan accounts into debt with a maturity of 30 years, he could easily have achieved that purpose by replacing £55,316 of value in his director’s loan accounts with 30-year securities with a par value of £55,316 carrying interest at a market rate which rolled up over the term of the securities and was paid on maturity. That would have produced exactly the same repayment profile as the Loan Notes but without any of the artificiality which actually occurred or the conversion of £694,684 of debt owed by the companies to the Appellant into equity in the companies.

The features described above mean that, when the Appellant took the step of transferring the Loan Notes to the Trustees of the two Settlements, he was in fact transferring to the Settlements assets to the value of only £55,316 and not £750,000. The balance of the amount paid by the Appellant when the Loan Notes were issued (£694,684) remained outside the Settlements, was reflected in the value of his equity in the companies and remained accessible to him and his potential creditors, including his wife. If the Appellant had wished to settle £55,316 into the Settlements, the obvious way of doing so would have been to transfer to the Settlements either cash of £55,316 (which the Settlements could have used to subscribe for 30 year securities with a par value of £55,316) or to convert £55,316 of value on his director’s loan accounts into 30 year securities with a par value of £55,316 and to transfer those securities to the Trustees of the Settlements.

In short, we find that the assertion made on behalf of the Appellant that he had a commercial purposes as his main purposes in implementing the transactions lacks any credibility. We think that the alleged commercial purposes were not purposes at all. Instead, the commercial effects of the transactions on which the Appellant seeks to rely to establish that he had commercial purposes were no more than commercial results which were acceptable to the Appellant and provided a convenient backdrop against which the sole real purpose of the transactions –the loss for tax purposes – could be secured.

We would add that, even if are wrong in saying that the commercial effects stemming from the Loan Notes’ becoming assets of the Settlements did not amount to a purpose, those commercial effects could have been achieved in a much more straightforward manner by the Appellant’s procuring that the Loan Notes were issued directly to the Settlements. Thus, on any analysis, the issue of the Loan Notes to the Appellant followed by the transfer of the Loan Notes to the Trustees of the Settlements were steps which had no commercial or business purpose whatsoever.

The terms of Mr Olley’s letter to the Respondents of 11 June 2001, shortly after the transactions were implemented, is indicative of that (see paragraph 57(4) above). In paragraph 2 of that letter, Mr Olley frankly acknowledged that “in establishing the loan notes our client was seeking to provide the possibility of obtaining a tax advantage”. Mr Olley did not in that paragraph of the letter mention that there might be any other purposes for the transactions. We think that that omission is telling. Although Mr Olley did mention in paragraph 7 of the letter that there was a commercial rationale to the issue of the Loan Notes, in that they enabled the Appellant to provide finance to the companies, there was no explanation of why the provision of that finance in the form of the Loan Notes served any commercial purposes. Moreover, entirely absent from that letter are references to any of the commercial purposes on which the Appellant sought to rely at the hearing – the provision for his children and his retirement and the protection of his assets from his potential creditors, including his wife;

Fact: the terms of the Loan Notes were determined by HW and were chosen solely in order to ensure that the Loan Notes qualified as relevant discounted securities and gave rise to the loss under paragraph 2 of Schedule 13.

Reason: that was also the evidence of Mr Olley – see paragraph 59(2)(b). It is also, in any event, a natural inference to draw from the agreed facts;

Fact: the terms on which the Loan Notes were issued were highly artificial and not commercial. There was a huge discrepancy between the amount which was paid on the issue of the Loan Notes - £750,000 – and the amount which would have been paid in respect of the issue of the Loan Notes in a transaction taking place at arm’s length - £55,316.

Reason: Mr Macklam produced a calculation at the hearing which showed that, based on the discount rate used by HW in preparing the additional information for box 15.11 of the Return, for the Loan Notes to have had a market value on issue of £750,000, the amount payable on maturity of the Loan Notes would have needed to be approximately £12,200,000. Although Mr Avient did not accept the accuracy of that calculation, we do not think that anything turns on the precision of the calculation. Even Mr Avient accepted that there was a significant mismatch between the amount paid on the issue of the Loan Notes and the market value of the Loan Notes when they were issued. It follows that, in order for the Loan Notes to have had a market value on issue of £750,000, the amount payable on maturity of the Loan Notes would have needed to be significantly in excess of the £900,000 which is in fact payable on their maturity. Thus, the stated terms on which the Loan Notes were issued had no commercial reality;

Fact: the only commercial loss to which the arrangements clearly gave rise was the value which was settled by the Appellant into the Children’s Trust. That amount was £11,063.20 (being 20% of the aggregate value of £55,316 which was given by the Appellants to the two Settlements when he transferred the Loan Notes to the Trustees of the Settlements on 29 March 1999). One can debate whether the remaining £44,252.80 which was given to the two Settlements on that date also amounted to a loss. The reason why that is unclear is that that value went into the KJP Settlement of which the Appellant was a beneficiary and under which the Appellant held a life interest. However, even if the Appellant were to be seen as having divested himself of the whole of the £55,316 of value which went into the Settlements on 29 March 1999, what is absolutely clear is that that is the only commercial loss to which the arrangements conceivably gave rise. The £694,684 which the Appellant claimed as a loss in respect of the implementation of the arrangements was not a loss at all. It was merely the amount which was converted from debt in the companies into equity in the companies.

Reason: this finding of fact stems inexorably from the reasoning underlying the findings of fact in paragraph 65(8) above;

Fact: the transactions into which the Appellant entered were part of a mass-marketed scheme adopted by many others.

Reason: our reasons for saying this are that:

Fact: there are no grounds for concluding that the Respondents were solely responsible for the delay which has occurred between the Tax Year in which the transactions were implemented and the proceedings which led to this decision or that any criticism should be levelled at the Respondents in respect of their conduct in relation to the transactions in question.

Reason: a theme to which Mr Avient returned repeatedly during the hearing was that the Appellant was aggrieved at the fact that transactions which he had implemented more than 20 years previously were only now the subject of a hearing before the First-tier Tribunal. The Appellant had three grievances in relation to the Respondents’ conduct, as follows:

The Respondents’ conduct is not one of the issues before us and is not within our jurisdiction, as such. If the Appellant wished to pursue a remedy in that regard, he would have needed to proceed by way of an action for judicial review in the High Court. The Respondents’ conduct is therefore not something which we consider to be relevant to our decision in this case but, in case it might be said that the Respondents’ conduct is a matter which we ought to be taking into account in relation to:

we should say that, on the basis of the evidence provided to us at the hearing, we are not at all convinced that responsibility for the extensive delay which has occurred in this case should be laid exclusively at the Respondents’ door or that the Respondents should be criticised for their conduct in this matter.

In the first place, there is no shortage of evidence to suggest that the Appellant and his advisers may have been just as responsible for the delay as the Respondents.

The correspondence listed in paragraph 57 above contains repeated reference to the fact that HW were in discussions with the Respondents in relation to other relevant discounted securities transactions for a considerable length of time and that it was Mr Olley on behalf of the Appellant who suggested that the enquiry into the Appellant’s transactions should await the outcome of those discussions.

Moreover, the Appellant authorised HW to act on his behalf in relation to the transactions in September 2010 – which suggests that the discussions with HW were still ongoing at that stage - and we have not been provided with any of the correspondence which passed between HW and the Respondents either before or after that date. This was no doubt because that correspondence contained references to the other transactions and therefore had to remain confidential but it does mean that we are unsighted in relation to much of the conduct of the dispute.

Finally, if the Appellant was as aggrieved about the delays as he now claims to be, it was always open for him to apply for the enquiry into the Return to be brought to an end long before the FA 2014 was enacted or the Follower Notice was issued, and there is no evidence that he sought to do that at any stage. In the absence of any such application, we do not see it as being incumbent on the Respondents to have issued the Closure Notice before they issued the Follower Notice.

We therefore decline to make any criticism of the Respondents’ conduct in this matter.

the principle outlined in Ramsay is a general principle of statutory construction;

the principle is two-fold in that it is first necessary to decide on a purposive construction exactly what transaction will answer to the statutory description and then to decide whether the transaction in question does so;

it does not matter in which order these steps are taken and the whole process can be iterative;

although the interpreter should assume that a statutory provision has some purpose, the purpose must be found in the words of the statute itself. The court must not infer a purpose without a proper foundation for doing so;

in seeking the purpose of a statutory provision, the interpreter is not confined to a literal interpretation of the words but must have regard to the context and scheme of the relevant Act as a whole;

however, the more comprehensively Parliament sets out the scope of a statutory provision or description, the less room there will be for an appeal to a purpose which is not the literal meaning of the words;

in looking at particular words that Parliament has used, what the interpreter is looking for is the relevant fiscal concept;

although one cannot classify all concepts a priori as “commercial” or “legal”, it is not an unreasonable generalisation to say that, if Parliament refers to some commercial concept such as a gain or loss, it is likely to mean a real gain or a real loss rather than one that is illusory in the sense of not changing the overall economic position of the parties to a transaction;

a provision granting relief from tax is generally (though not universally) to be taken to refer to transactions undertaken for a commercial purpose and not solely for the purpose of complying with the statutory requirements of tax relief.However, even if a transaction is carried out in order to avoid tax it may still be one that answers the statutory description;

in approaching the factual question of whether the transaction in question answers the statutory description, the facts must be viewed realistically;

a realistic view of the facts includes looking at the overall effect of a composite transaction, rather than considering each step individually;

a series of transactions may be viewed as a composite transaction where the series of transactions is expected to be carried through as a whole, either because there is an obligation to do so, or because there is an expectation that they will be carried through as a whole and no likelihood in practice that they will not;

in considering the facts, the fact-finding tribunal should not be distracted by any peripheral steps inserted by the actors that are in fact irrelevant to the way in which the scheme was intended to operate; and

in considering whether there is no practical likelihood that the whole series of transactions will be carried out, it is legitimate to ignore commercially irrelevant contingencies and to consider it without regard to the possibility that, contrary to the intention and expectation of the parties, it might not work as planned. Even if the contingency is a real commercial possibility, it may be disregarded if the parties proceeded on the basis that it should be disregarded.

the Ramsay principle apply to all statutes (paragraphs 67(1) to 67(3));

the purpose of the legislation is to be found in its wording, having regard to the context and scheme of the relevant Act as a whole (paragraphs 67(4) to 67(7));

where a statute refers to a commercial concept such as gain or loss, it generally means a real gain or loss rather than one that does not change the economic position of the parties to the transaction (paragraph 67(8));

a provision granting relief from tax is generally to be taken to refer to transactions undertaken for a commercial purpose and not solely for the purpose of complying with the statutory requirements for obtaining the relief (paragraph 67(9)); and

in approaching the question of whether specific facts fall within the particular provision, the facts must be viewed realistically and this includes looking at the overall effect of a transaction or series of transaction, in the way it was expected to be carried out, rather than considering each step individually (paragraphs 67(10) to 67(14)).

the amount paid by a taxpayer in respect of the acquisition of relevant discounted securities exceeded the amount received by the taxpayer on the disposal of those securities;

the taxpayer had some commercial purpose in implementing the transactions in question; and

the transactions in question involved a change in the taxpayer’s economic position,

they involved the acquisition by the Appellant of the Loan Notes, which had been issued by two companies of long-standing and substance;

the Appellant had actually paid £750,000 in respect of that acquisition to the companies;

the Appellant had subsequently transferred the Loan Notes to the Trustees of the Settlements, which were trusts set up for commercial reasons - namely, the desire to provide long-term funding to the companies, to provide for the Appellant’s retirement and the Appellant’s children and to provide protection for the Appellant from potential creditors, including his wife – for a deemed consideration (market value at the time of the transfer) which was less than the amount paid by the Appellant in respect of the acquisition of the Loan Notes by the amount of £694,684;

those steps did not have the tax loss as their primary purpose but had instead been effected primarily for commercial reasons; and

critically, following their implementation, they had given rise to a change in the economic positions of each of the parties.

the Appellant had paid £750,000 to the companies in respect of the issue of the Loan Notes;

the companies had issued the Loan Notes to the Appellant; and

the Appellant had subsequently transferred the Loan Notes to the Trustees of the Settlements,

had not been implemented pursuant to a mass-marketed scheme;

were not artificial or contrived and were not circular and self-cancelling; and

were simple and transparent.

had proceeded on the basis that paragraphs 1, 2 and 3 in Schedule 13 were to be given a purposive construction – see Astall at paragraph [41];

had expressly rejected the contentions of the taxpayers in that case to the effect that the concept of a deep gain was simply an amount resulting from a calculation, saying that, instead, there had to be the realistic possibility of a real gain – see Astall at paragraphs [61] et seq.; and

made it clear that the relevant question was not whether the legislation contained a restriction on the nature of the funds which could be used to redeem the securities but rather whether, on the facts, the terms of redemption resulted in a redemption at a deep gain for the purposes of the legislation – see Astall at paragraphs [61] et seq..

the Appellant had made no commercial loss from the transactions, given that the Settlements were for the benefit of himself and his family;

even if one could see the gifts to the Settlements as involving a real commercial loss, that loss was only £55,316 at most – i.e. the value of the Loan Notes when they were transferred to the Trustees of the Settlements – and the loss in question was the loss of £55,316 arising from giving away assets of that value to the Settlements and not a loss of the kind at which paragraph 2 of Schedule 13 was aimed – i.e. a loss arising from the difference between the amount paid in respect of the acquisition of relevant discounted securities and the amount received for those securities on disposal;

the Appellant had not paid £750,000 in respect of the acquisition of the Loan Notes because, when one examined the facts realistically:

as such, when one came to conduct the calculations required by paragraphs 2(2) and 2(3) of Schedule 13, the amount paid by the Appellant in respect of the acquisition of the Loan Notes was either nil or £55,316. In either case, no loss had arisen under paragraph 2 of Schedule 13 when that provision was construed purposively and the facts were viewed realistically.

the transaction could not be said to have been implemented solely for tax purposes;

the transaction gave rise to enduring commercial consequences. In Campbell, the taxpayer's economic position had changed for the worse in that he still owed money to the bank from which he had borrowed to subscribe for the loan notes but he no longer held the loan notes and, in this case, the Appellant had given up his right to be repaid £750,000 of the balance on his director’s loan accounts with the companies, the Settlements held the Loan Notes with a maturity of 30 years  and the companies had the use of the subscription proceeds for 30 years; and

the relevant loan notes had a greater value to the owner of the company which had issued the loan notes than they did to an unconnected third party. 

in Campbell, the Special Commissioners had held that there was a tax main purpose whereas, in this case, the Appellant's main purpose was commercial and the tax purpose was subsidiary to that purpose; and

in Campbell, the issuer of the loan notes was newly-formed whereas, in this case, the issuers of the loan notes were companies of long-standing.

the language in paragraph 2 of Schedule 13 was mechanistic in nature and was apt to apply to transactions such as gifts "which would not either in ordinary parlance or in a commercial sense be regarded as giving rise to a loss"; and

the language in the paragraph did not support the implication of an additional condition to the effect that, in order for a transaction to give rise to a loss under the paragraph, the transaction had to have been implemented solely for commercial purposes. Although, in Campbell, such commercial purposes did in fact exist, that was not a necessary condition to the claiming of the loss – see Campbell at paragraphs [90] to [94], as analysed in Berry at paragraph [43].

had accepted that the taxpayer had acquired the loan notes and that the entirety of the subscription monies had been paid in respect of that acquisition; and

had sought to rely exclusively on the argument that the entire arrangements had a tax avoidance purpose so that they should all be disregarded.

were seeking to draw a parallel between paragraph 2 of Schedule 13 and the legislative provision which was relevant in the case of Scottish Provident Institution v Inland Revenue Commissioners [2004] 1 WLR 3172 (“SPI”), that was an error because it was clear from Berry at paragraph [40] that it was always necessary in each case to focus on the language used in the specific provision which was under consideration and the legislative provision which was relevant in SPI was different from the legislative provision which was relevant in Campbell;

were seeking to rely on the dichotomy described in MacNiven v Westmoreland Investments Limited [2001] STC 237 (“Westmoreland”) between “commercial” concepts (which were susceptible to the Ramsay doctrine) and “legal” concepts (which were not), the decision in Westmoreland was no longer good law; and

were saying that the loss referred to in paragraph 2 of Schedule 13 was not a loss in the commercial sense but instead had an artificial meaning, that was incorrect and it was not the reason for the decision in Campbell. Instead, the basis for that decision was that, following the concession made by the Respondents to the effect that the entire subscription amount had been paid in respect of the acquisition of the securities and the uncontested evidence to the effect that the transfer of the securities was not certain to occur when the securities were issued, the taxpayer had made a real commercial loss.

in this case, the issuers of the Loan Notes were companies which were of long standing whereas, in Audley, the loan note in question had been issued by a newly-formed trust;

in this case, there was a commercial rationale for the issue of the Loan Notes – namely, the Appellant’s desire to make provision for his children and his retirement and to provide protection to the Appellant from his potential creditors, including his wife – whereas, in Audley, there was no commercial rationale for the issue of the loan note in question;

in this case, there were two separate transactions – first, the issue of the Loan Notes and then the transfer of the Loan Notes to the Trustees of the Settlements – whereas, in Audley, the First-tier Tribunal had found that there was a single composite transaction and the sole purpose of the single composite transaction was to provide the taxpayer with access to the tax benefit;

in this case, the Loan Notes had been issued for cash which had actually been paid whereas, in Audley, the taxpayer could not explain why the cash element of the issue price had been paid and most of the issue price was in the form of a property the transfer of which had not been completed. Moreover:

These were further indications that there had not been a genuine sale of the property by the taxpayer to the issuer of the loan note; and

in this case, the transactions gave rise to enduring commercial outcomes for the Appellant, the companies and the Settlements whereas, in Audley, viewed realistically, nothing had changed. The taxpayer still lived in the property and could deal with it as he wished and therefore no payment had been made for the loan note.

a claim for relief under paragraph 2 of Schedule 13;

relevant discounted securities issued to the taxpayer by a connected entity;

a transfer of assets by the taxpayer to the connected entity which was the issuer;

as a result of a lack of commerciality in the terms of the relevant discounted securities, a significant disparity between the value of the relevant discounted securities on issue and the value of the assets transferred by the taxpayer to the issuer on issue;

a total lack of concern on the part of the taxpayer as to the disparity mentioned in paragraph 94(4) above because of the connection between the taxpayer and the issuer;

a gift of the relevant discounted securities to a connected entity other than the issuer a few days after issue;

origins in a meeting between the taxpayer and his advisers on ways in which the taxpayer might mitigate his tax liabilities; and

a lack of any meaningful technical understanding of the arrangements by the taxpayer who was simply following the steps set out for him by his advisers.

the issuer of the loan notes in Audley was a trust rather than a company;

the assets transferred to the issuer by the taxpayer in Audley were property and cash rather than just cash; and

the same advisers acted for both the taxpayer and the issuer in relation to the property transfer

was not solely for the purpose of producing the tax loss and but also had some commercial purpose; and 

involved a change in the taxpayer's economic position, 

the relevant provisions needed to be construed purposively and that, insofar as the Special Commissioners in Campbell had held otherwise, he was bound to follow the Court of Appeal in Astall to the contrary;

the Special Commissioners in Campbell were not saying that the fact-finding tribunal should ignore the reality of the transactions that in fact took place. They were merely saying that the purpose of the holder of the relevant loan notes should not inform the construction of the term “loss”; and

in Campbell, once the Special Commissioners had decided (or the Respondents had conceded) that no part of the amount paid to the issuer of the relevant loan notes when the loan notes were issued was a gift and that the reality of the situation was that the entire amount so paid constituted the acquisition price of the loan notes, the legislation operated to give rise to the loss.

to conclude, from the decisions in Astall and Berry, that, in enacting paragraph 2 of Schedule 13, Parliament intended to relieve only real commercial losses; and

to reconcile the statements in Campbell to the effect that loss for the purposes of paragraph 2 of Schedule 13 was an artificial concept and that the paragraph operated mechanistically with the subsequent decisions in Astall and Berry by observing that, whilst paragraph 2(2) might operate mechanistically once the two figures which were relevant for that paragraph were known, those figures had to be determined in a manner which was consistent with commercial reality. This was because “[the] calculation must have been intended to give effect to the notion of a “real” loss envisaged by Parliament when it legislated the phrase “…a person sustains a loss…”” (see Bretten at paragraph [90]).

the various steps could be seen as one composite transaction in which each step proceeded in accordance with a plan laid out in advance;

the taxpayer was never at risk of making a real gain or loss on the subject loan notes; and

there was an expectation that each step in the plan would be carried out and the chances that it would not be carried out were remote.

a purposive construction of paragraph 14A of Schedule 13 was that it provided for relief to a person who sustained a loss from a discount on a gilt strip where that loss reflected a real commercial outcome and involved the taxpayer’s suffering some real economic detriment; and

the way in which this was achieved in practice was to ensure that the inputs into the calculation in paragraph 14A(3) of Schedule 13 reflected the reality of the transaction.

the usual principles of statutory interpretation apply in the case of paragraph 2 of Schedule 13 – thus, it is necessary:

and to conduct that process iteratively (see Astall at paragraphs [41], [42] and [45]);

the mere fact that, in entering into the transaction, the taxpayer intended to obtain a tax advantage is irrelevant; (see Astall at paragraph [41]);

in determining the nature of the actual transaction:

the purpose of paragraph 2 of Schedule 13 was to give relief for a loss accruing from a relevant discounted security (see Astall at paragraph [46]).

referred to the “sustaining” of a “loss” from the discount on the relevant security; and

then went on to say that, for the purposes of the relevant paragraph, a person “sustained” a “loss” from the discount on the relevant security where he transferred or redeemed the security and the amount paid for (or in respect of the acquisition of) the relevant security exceeded the amount payable on the transfer or redemption. (For completeness, we would note that, whereas paragraph 14A of Schedule 13 simply referred to “the amount paid for the security”, paragraph 2 of Schedule 13 referred to “the amount paid in respect of the acquisition of the security” but we can see no meaningful differences between those two formulations in this context).

Lewison J made exactly the same point in Berry at paragraph [36] when he said that he was bound to follow the decision in Astall; and

the First-tier Tribunal in Andrew made the same observation at paragraph [67].

in seeking the purpose of a statutory provision, the interpreter is not confined to a literal interpretation of the words but must have regard to the context and scheme of the relevant Act as a whole (see Berry at paragraph [31(v)]);

however, the more comprehensively Parliament sets out the scope of a statutory provision, the less room there is for an appeal to a purpose which is not the literal meaning of the words (see Berry at paragraph [31(vi)]);

it is not an unreasonable generalisation to say that, if Parliament refers to some commercial concept such as a gain or a loss, it is likely to mean a real gain or a real loss rather than one that is illusory in the sense of not changing the overall economic position of the parties to a transaction (see Berry at paragraph [31(viii)]). In view of Mr Avient’s submissions at the hearing in relation to Lewison J’s use of the phrase “change in the overall economic position of the parties”, we need to explain what we consider Lewison J meant by that reference. In our view, Lewison J was referring there to the realisation of a genuine gain or loss in economic terms and contrasting it to a situation where no such genuine gain or loss arises. We do not agree with the suggestion by Mr Avient that Lewison J was merely referring there to the creation of enduring economic consequences falling short of the realisation of a genuine gain or loss in economic terms. We say that because:

the ratio of Campbell was that there was no room for the purpose of the taxpayer in entering into the transactions to inform the construction of the term “loss”. The ratio was not that, in applying paragraph 2 of Schedule 13, the relevant court or tribunal should ignore the reality of the transactions which had in fact taken place. (In any event, on the facts in Campbell, the Special Commissioners had found that the taxpayer in Campbell had had a commercial purpose – at least in subscribing for the relevant loan notes – and that the taxpayer had suffered a genuine commercial loss (see Berry at paragraph [43]));

paragraph 2 of Schedule 13 is a closely-articulated provision which operates mechanistically once the two inputs into the calculation as described in paragraph 2(2)(b) of Schedule 13 – the amount paid in respect of the acquisition of the securities and the amount received on the transfer of the securities – have been identified. However, it is necessary to identify those inputs by reference to the reality of the transactions. In Campbell, it had been accepted that the reality of the transactions was that no part of the amount which had been paid by the taxpayer to the issuer of the loan notes was a gift and that the entire amount had been paid by the taxpayer in respect of the acquisition of the loan notes (see Berry at paragraphs [43] to [45]); and

the purpose of paragraph 2 of Schedule 13 is to provide relief for genuine commercial losses (or “real commercial outcomes” as Lewison J put it). This is not an example of a provision – such as the one which was being addressed in SPI – which operates algebraically without reference to economic reality (see Berry at paragraph [52]).

it is clear from the evidence in this case that the Appellant had no real understanding of the import of the transactions which he was implementing. As far as he was concerned, he had been introduced to arrangements which would save him a considerable amount of tax and which had been blessed by each of HW, PB and Mr Sherry. He had merely to sign the documents which HW had prepared for him and circle some cash and that would generate the tax relief which he needed to shelter his income in the Tax Year. In that regard, the Appellant was in an identical position to the position of the taxpayer in Audley (see Audley at paragraph [33(1)]);

this leads on naturally to a related point, which is that, at the time when the Loan Notes were issued, the Appellant clearly did not direct his mind to the vast discrepancy which existed between the amount which he was purportedly paying in return for the issue of the Loan Notes and the market value of the Loan Notes on issue. As far as he was concerned, he didn’t care about the value of the Loan Notes when they were issued because the issuers of the Loan Notes were his own wholly-owned companies. As such, he knew that the entirety of the amount which he was purportedly paying for the issue of the Loan Notes would remain under his control within the companies and that any difference between the amount he was paying and the value of the Loan Notes on issue would augment the value of his equity in the companies. At the hearing, the Appellant freely admitted that he would not have been prepared to pay the same amount for the issue of the Loan Notes had the issuers been companies unrelated to him;

the only commercial loss suffered by the Appellant as a result of the arrangements was £11,063.20 – the value of the Loan Notes which were transferred by way of gift to the Trustees of Children’s Trust – or conceivably £55,316 – the value of the Loan Notes which were transferred by way of gift to the Trustees of the two Settlements. The reason for expressing some doubt over the question of whether the Loan Notes which were given to the KJP Settlement gave rise to a commercial loss for the Appellant is because the Appellant was a beneficiary of the KJP Settlement and held a life interest in that Settlement and so, arguably, his gift to that Settlement involved no commercial loss at all;

regardless of whether the commercial loss suffered by the Appellant as a result of the arrangements was £11,063.20 or £55,316, as referred to in paragraph 126(3) above, crucially, that commercial loss arose solely from the fact that that was the value which the Appellant gave to the Children’s Trust or, as the case may be, the two Settlements by virtue of the transactions. It was not a loss which related in any way to the difference between the amount paid in respect of the acquisition of the Loan Notes and the amount deemed to be received in respect of the disposal of the Loan Notes, which is to say a loss of the type at which paragraph 2 of Schedule 13 was aimed;

the Appellant did not make a loss of the latter type because:

the transactions in question – the issue of the Loan Notes and their subsequent transfer - were an integrated whole. They were a single composite transaction, so that, once the Loan Notes were issued, there was no realistic possibility that they would not be transferred at some point to a person connected with the Appellant such as the Trustees of the Settlements. The only things that remained to be determined when the Aggregate Loan Notes were issued was the exact portion of the Aggregate Loan Notes which was to be transferred in the Tax Year, as opposed to the following tax year of assessment and the precise identity of the connected person in question - see paragraph 65(3) above – and these were determined shortly after issue.

the Appellant can be said to have directed his mind to the fact that he wanted to acquire the Loan Notes and was prepared to pay the full £750,000 in order to acquire them; or

there can be said to have been a genuine agreement – in the sense of a meeting of minds – between the Appellant and the companies to the effect that the Loan Notes would be issued for the aggregate amount which was stipulated in the documents recording the subscriptions to be the issue price of the Loan Notes.

whether or not there is a loss for the purposes of paragraph 2 of Schedule 13, and the amount of that loss if it arises, is to be determined mechanistically by reference to the two inputs set out in paragraphs 2(2) and 2(3) of Schedule 13;

that requires the amount paid by the Appellant in respect of his acquisition of the Loan Notes to be identified because that is one of the inputs into the calculations in paragraphs 2(2) and 2(3) of Schedule 13;

in implementing the transactions, the Appellant did not make a commercial loss of the kind at which paragraph 2 of Schedule 13 is aimed, viewed purposively;

that fact needs to be taken into account, along with all of the other facts, in determining, on a realistic basis, how much the Appellant paid in respect of his acquisition of the Loan Notes (if he acquired them) and therefore the figure which is to be taken into account as the relevant acquisition price input in making the calculations in paragraphs 2(2) and 2(3) of Schedule 13; and

when one takes all of those facts into account, the only logical conclusion is that, viewed realistically, only £55,316 of the amount paid by the Appellant to the companies was attributable to the issue of the Loan Notes and the balance was capital contributions to the companies so that, if the Appellant acquired the Loan Notes, he did so for only £55,316 and therefore no loss arose under paragraph 2 of Schedule 13.

Audley – see Audley at paragraphs [88] and [89];

Andrew - see Andrew at paragraphs [83] and [93];

Bretten - see Bretten at paragraphs [90], [102] and [124] to [130]; and

Pike – see Pike at paragraphs [90] to [93].

we have already found as a fact that this was a single composite transaction in which, at the time when the Aggregate Loan Notes were issued, there was no meaningful prospect that the Appellant would not transfer the Aggregate Loan Notes to a person connected with him, such as the Trustees of the Settlements, either within the Tax Year, shortly after the Loan Notes were issued, or in the following tax year of assessment, depending on the Appellant’s tax capacity in the Tax Year. Thus, the Appellant never really acquired the risks and rewards of ownership of the Loan Notes despite the fact that he was the registered holder of the Loan Notes for a brief period;

there are examples in the authorities of cases where a step inserted into a composite transaction which had no commercial purpose apart from the avoidance of tax has been disregarded in determining the reality of the transaction which has been implemented – see, for example, the House of Lords decision in Furniss v Dawson [1984] STC 153 (“Furniss”) and the Privy Council decision in Carreras Group Limited v Stamp Commissioner [2004] STC 1377 (“Carreras”);

in Furniss, the taxpayers negotiated a sale of their shares in two operating companies to an unrelated purchaser for cash and then, as part of a scheme to defer their liability to capital gains tax, exchanged those shares for shares in a newly-incorporated Isle of Man company, which then sold the shares to the purchaser for cash. The initial share exchange was designed to bring the disposal by the taxpayer into a provision in the UK tax legislation conferring a deferral from capital gains tax. The House of Lords concluded that this was a pre-ordained series of transactions and that the initial exchange by the taxpayers of shares in the operating companies for shares in the Isle of Man company was a step with no commercial or business purpose apart from tax avoidance. That step could therefore be disregarded in applying the relieving provision in the legislation and the transaction should instead be analysed as if the taxpayers had sold the shares in the operating companies directly to the purchaser and directed the purchaser to pay the cash consideration to the Isle of Man company. This was the case even though the transaction as a whole was commercially-motivated and gave rise to enduring legal consequences. Lord Fraser noted that, despite the enduring legal consequences, “the fiscal consequences of a preordained series of transactions, intended to operate as such, are generally to be ascertained by considering the result of the series as a whole, and not by dissecting the scheme and considering each individual transaction separately” (see Furniss at 155e);

in Carreras, the taxpayer agreed to sell shares to an unrelated purchaser in exchange for a debenture issued by the purchaser which was unsecured, non-transferable and non-interest-bearing and was repaid two weeks after its issue. The purpose of the debenture issue was to take advantage of a stamp duty exemption in Jamaica which applied to reorganisations. The Privy Council held that, despite the existence and legality of the intervening step comprising the debenture issue, it was a step inserted into a single pre-ordained transaction comprising a sale for the cash redemption price of the debenture and, as such, should be disregarded in considering whether the stamp duty exemption applied;

in both Furniss and Carreras, the inserted step (which was disregarded by the relevant court) was designed to bring the taxpayer within a provision conferring relief from a liability to tax – UK capital gains tax in the case of Furniss and Jamaican stamp duty in the case of Carreras. Similarly, in this case, the inserted steps - the acquisition of the Loan Notes by the Appellant and the disposal of the Loan Notes to the Trustees of the Settlements – were designed to bring the Appellant within a provision conferring on the Appellant a loss for income tax purposes;

in this case, at the time when the Aggregate Loan Notes were issued, the only uncertainties as regards the Aggregate Loan Notes were:

The resolution of those uncertainties was entirely within the control of the Appellant and his advisers. Moreover, the uncertainties had no bearing on the nature of the arrangements. They merely related to the timing of the transfers and the precise identity of the connected person to whom the transfers would be made;

thus, the facts in this case are very different from those referred to in Craven v White; Baylis v Gregory and Inland Revenue Commissioners v Bowater Property Developments Limited [1989] AC 398 (“Craven”), where, at the time when the initial share exchanges took place, it was wholly uncertain whether the eventual disposal would take place and the identity of the ultimate purchasers, the prices to be paid by the ultimate purchasers and the other terms of the contracts with the ultimate purchasers were unknown (see Lord Fraser in Craven at 481). In the words of Lord Fraser at page 481, “both the transactions in the series can properly be regarded as pre-ordained if, but only if, at the time when the first of them was entered into the taxpayer is in a position for all practical purposes to secure that the second also is entered into”. That was very much so in this case;

in the circumstances, we can see no meaningful distinction between the facts in the present case and the facts in Furniss and Carreras. This means that, although it is not necessary to decide the point given the conclusion which we have already reached, we are inclined to agree with Mr Macklam that the reality of the arrangements in this case is that the Appellant paid the £55,316 which was paid to the companies in respect of the issue of the Loan Notes not in order to acquire the Loan Notes himself but instead to procure the issue of the Loan Notes directly to the two Settlements and that the Appellant never acquired the Loan Notes at all so that, on a purposive construction of paragraph 2 of Schedule 13, no loss arose from the transactions for a quite separate reason from the reason given above – i.e. there simply was no acquisition of the Loan Notes by the Appellant at all; and

we note that this was an analysis which appealed to the First-tier Tribunal in Bretten at paragraphs [136] to [148], in relation to similar facts.

was the decision in Audley a “relevant” judicial ruling in relation to the arrangements described in the Follower Notice?

if Audley was a “relevant” judicial ruling in relation to the arrangements described in the Follower Notice, was it reasonable in all the circumstances for the Appellant not to have taken the necessary corrective action in response to the Follower Notice? and

if Audley was a “relevant” judicial ruling in relation to the arrangements described in the Follower Notice and it wasn’t reasonable in all the circumstances for the Appellant not to have taken the necessary corrective action in response to the Follower Notice, should the Penalty Assessment have been lower than it was because of the extent and nature of the Appellant’s co-operation with the Respondents in relation to the Follower Notice?

was a “judicial ruling” (as defined in Section 205(2) of the FA 2014);

related to “tax arrangements” (as defined in Section 201 of the FA 2014); and

was a “final ruling” (as defined in Section 205(4) of the FA 2014).

how fact-sensitive the judicial ruling was and, if it was, the similarities and differences between the facts in the judicial ruling and the facts in the case being addressed;

whether the relevance of the judicial ruling to the case being addressed turned on the rejection of the evidence of the taxpayer in the case being addressed as being untruthful. If so, the court or tribunal needed to consider whether it was satisfied that the untruthfulness of the factual assertions by the taxpayer in the case being addressed was so clear that the judicial ruling was relevant;

the fact that some situations were less fact-sensitive – for example, where the taxpayer in the case being addressed had entered into the same mass-marketed scheme as the taxpayer who was the subject of the judicial ruling and there was no material difference between the arrangements in the two cases;

whether:

finally, the nature of the judicial ruling – for example, if it had been reached in circumstances where the taxpayer had been unrepresented or had not appeared or where the reasoning set out in the judicial ruling was brief or unclear, that might make it less capable of being “relevant” than where the converse was the case.

the Respondents had produced no evidence to show that the Appellant had participated in a mass-marketed scheme. The transactions into which the Appellant had entered were pursuant to advice rendered to him by HW on the basis of his specific facts and related to how the Appellant might refinance his wholly-owned companies and then subsequently achieve his commercial purposes in relation to his retirement, his children and his potential creditors, including his wife, by transferring securities to a connected trust whilst benefiting from a tax deferral. These transactions could not be seen as forming part of a scheme made available to a number of different taxpayers and involving artificial steps; and

the decision in Audley was extremely fact-sensitive and he had already set out the numerous ways in which the facts in Audley differed from the facts in the Appellant’s case (see paragraphs 89 to 91 above). Audley did not lay down any general principles because it was specific to its own peculiar facts.

the transactions which were the subject of the appeal had been implemented pursuant to a mass-marketed scheme;

Audley was not a fact-sensitive decision. In other words, it was not a case where a small difference in the fact pattern would mean that the principles laid down in the case would not apply;

the relevance of Audley in this case did not turn on our finding that the Appellant’s evidence was untruthful but, even if it did, the decision in Whispering Smith showed that that would be no bar to our deciding that Audley was a “relevant” judicial ruling;

no legal arguments which had been raised in this case were new – they had all been raised in Audley; and

the decision in Audley was reliable – it was a detailed decision citing Court of Appeal authority in Astall and carefully distinguishing the decision in Campbell. It clearly set out the relevant principles and applied them to the facts in that case.

the taxpayer:

the Respondents had submitted that labels to transactions were not determinative and that the focus should be on substance over form.

the various steps in Audley were part of a single pre-ordained unitary transaction;

Campbell could be distinguished on the basis of its facts and, in particular, the acceptance by the Respondents in Campbell that the entire amount paid by the taxpayer to the issuer had been in respect of the acquisition of the relevant loan notes; and

the excess of the value transferred to the issuer by the taxpayer over the value of the loan note on issue was, when viewed realistically, a gift and not in respect of the acquisition of the loan note and that therefore no loss arose under paragraph 2 of Schedule 13.

he reasonably believed that Audley was not a “relevant” judicial ruling;

he had taken all actions that he could reasonably have taken in relation to the Follower Notice other than giving up the substantive appeal; and

he had made arrangements to pay the accelerated payment notice, thereby ensuring that he received no cash-flow advantage between the issue of the Follower Notice and the determination of the substantive appeal.

if we were to conclude that Audley was a “relevant” judicial ruling, then we would, by definition, have concluded that there was no scope for a reasonable person to conclude that the principles laid down in, and the reasoning given in, Audley did not apply on the facts in this case. As such, any belief that Audley was not a “relevant” judicial ruling would, by definition, be an unreasonable belief;

moreover, even if it might be argued that that unreasonable belief was based on the advice which the Appellant had received following the issue of the Follower Notice, and there was some doubt from the evidence that the Appellant had actually sought that advice or, if so, when he had sought that advice, that advice had, to put it at its strongest, been given orally by PB and HW, the very people who had advised the Appellant to enter into the transactions. After his receipt of the Follower Notice and prior to the deadline for taking the necessary corrective action of 29 June 2017, the Appellant had not sought formal written advice on the efficacy of the transactions from an independent legal adviser (as he had in fact done before entering into the transactions in 1999). That was not reasonable in all the circumstances;

moreover, it was clear from the letter from PB to the Respondents of 29 June 2017 – which was the day by which the necessary corrective action needed to be taken in order to avoid a penalty – that the Appellant was still awaiting advice on that day in relation to the question of whether or not he needed to take the necessary corrective action from Mr Edwards of HW, who was off on long-term sick leave. It followed inexorably that, by the day that he was required to take the necessary corrective action, the Appellant had not yet received the advice that he did not need to take the necessary corrective action;

the facts in this case fell well short of those in Whispering Smith where even the fact that the taxpayer had taken written advice from independent counsel to the effect that there were reasonable grounds for judicial review was insufficient to amount to reasonable grounds for failing to take the necessary corrective action – see Whispering Smith at paragraphs 117, [126(3)], [126(7)(a)], [126(9)(e)] and [130]; and

in this context, the fact that the Appellant had taken steps to discharge the accelerated payment notice was wholly irrelevant. The purpose of the follower notice legislation was to prevent taxpayers from pursuing their disputes in avoidance cases where the arrangements in question had been shown to fail in other litigation. Continuing to pursue litigation in those circumstances frustrated that statutory purpose and that was why the legislation provided for a penalty. Discharging an accelerated payment notice was no more than complying with another statutory obligation and had nothing to do with meeting the purpose of the follower notice legislation – see Comtek at paragraph [46].

to approach the question “holistically”;

to recognise that the overall purpose of the regime was to discourage taxpayers from pursuing, without good reason, disputes about tax advantages which the Respondents reasonably considered to have been determined in their favour in other finally-decided cases so that co-operation which came closest to addressing that purpose should, accordingly, attract the greatest credit; and

where the taxpayer had taken steps falling with Section 210(3) of the FA 2014, to consider the overall effectiveness of those steps in meeting the purpose of the provisions.

had been dilatory in their pursuit of the enquiry so that the follower notice legislation had been enacted before the enquiry was completed; and

had chosen to issue the Follower Notice before issuing the Closure Notice.

the various categories of co-operation were exhaustively listed in Section 210(3) of the FA 2014 – see Comtek at paragraph [37] – and taking the necessary corrective action was one of those categories;

the purpose of the follower notice legislation was to discourage the continuation of an appeal when there was a relevant judicial decision which indicated that the appeal would fail. As such the timing, nature and extent of the taxpayer’s co-operation needed to be assessed by reference to whether or not the taxpayer had taken the necessary corrective action and a failure to take the necessary corrective action should mean that a material part of the credit for co-operation should be denied – see Comtek at paragraphs [45], [51] and [52(2)] and Barlow at paragraph [94]; and

in this case, the Appellant had failed to take the necessary corrective action.

contrary to the submissions made by Mr Avient, we do not consider Audley to be an acutely fact-sensitive decision. The principles which it laid down were straightforward and its reasoning was comprehensive and transparent. Those principles and that reasoning were to the effect that a taxpayer is not entitled to a loss under paragraph 2 of Schedule 13 if :

Those were the material facts in Audley and they are also the material facts in this case;

it is not entirely surprising that the facts in the two cases are so similar because we have concluded that the structure described above was a mass-marketed scheme (see paragraph 65(12) above);

the arguments which were made by the taxpayer in Audley were the same as the arguments made by Mr Avient on behalf of the Appellant in this case. The taxpayer in Audley sought to rely on the decision in Campbell and reference was made to Astall, which was distinguished. This is not a case where the Appellant has raised some novel point which the taxpayer in Audley did not raise. In both cases, the submissions made by the relevant appellant were and are identical and were and are that, because the subscription purported to be for a specified amount, that amount should be accepted as the amount paid in respect of the acquisition of the relevant discounted security notwithstanding the over-value payment;

the taxpayer in Audley was represented by a Queen’s Counsel who comprehensively argued the taxpayer’s case before the First-tier Tribunal. Audley was not a case where the taxpayer was not adequately represented;

the conclusion in Audley did not depend on some concession made by the taxpayer in that case which the Appellant is contesting in his case;

the First-tier Tribunal in Audley provided a fully-reasoned decision which set out its conclusions and the reasons for those conclusions. Those conclusions were entirely consistent with the conclusions which we have reached in relation to the substantive appeal, to the effect that, of the amount which was paid by the Appellant at the time when the Loan Notes were issued, only such part of that amount as was equal to the market value of the Loan Notes at the time of issue was paid in respect of the issue of the Loan Notes and the balance was capital contributions to the companies; and

we consider that none of the differences between the facts in Audley and the facts in this case, on which Mr Avient sought to rely as set out in paragraphs 89 to 91 above, is in any way material to the applicability to the Appellant’s case of the principles laid down in, and the reasoning set out in, Audley. In that regard, taking each of Mr Avient’s points in those paragraphs in order, we would comment as follows:

given the conclusion which we have reached in relation to the relevance of the principles laid down in, and the reasoning given in, Audley, it was not reasonable for anyone – whether it be the Appellant or his advisers – to believe that those principles and that reasoning did not also apply to the Appellant’s arrangements. As such, it was reasonable to expect that the Appellant would take the necessary corrective action by the deadline;

we consider that the Appellant did not take reasonable steps to satisfy himself that he did not need to take the necessary corrective action by the specified date. Reasonable steps would have involved taking written advice from a person who had not been involved in the original advice and could therefore consider the position wholly objectively and untrammelled by any conflict of interest. On his own admission, the Appellant failed to do this;

it is not relevant to this issue that the Appellant took all actions that he could reasonably take in relation to the Follower Notice other than giving up his appeal. The purpose of the follower notice regime is to discourage the litigation of points which have already been decided in a relevant judicial decision. As such, the reasonableness that is being tested in this instance is the reasonableness of continuing with the dispute by failing to take the necessary corrective action and not the reasonableness of other behaviour; and

similarly, we agree with Mr Macklam that the fact that the Appellant discharged the accelerated payment notice is nothing to the point. That was a liability which had nothing to do with the Appellant’s obligations under the follower notice legislation.

the overall purpose of the regime is to discourage taxpayers from pursuing, without good reason, disputes about tax advantages which have already been determined in favour of the Respondents in a prior case;

co-operation which comes closest to addressing that purpose should, accordingly, attract the greatest credit; and

where the taxpayer has taken steps falling with Section 210(3) of the FA 2014, the overall effectiveness of those steps in meeting the purpose of the regime should be considered.

the relevant person acquired the security by way of issue;

inter alia, the relevant person was, at the time of issue, connected with the issuer; and

the amount paid by the relevant person on acquisition exceeded the market value of the security at the time of issue,