This is a cautionary tale, highlighting that using experienced solicitors is vital when transacting life changing events, and then when following up in tribunal.  Two taxpayers sold the shares of their company, that provided nursing home services, and the share sale and purchase agreement (the SPA) stated that consideration would be £8m for the entire share capital but the buyer would settle some of the company’s debt.  The debt was around £1.1m.

The two taxpayers submitted their tax returns and disclosed that consideration for the shares was net of the £1.1m debt due to a bank, as they had only received the net amount.  HMRC duly open enquires into their tax returns and subsequently issued closure notices requesting a further £110k capital gains tax from each taxpayer.

The First-tier Tribunal (FTT) found that the taxpayers were taxable on the gross amounts of £4m each as opposed to the net amounts of £3.45m each.  The FTT found as a fact that the SPA meant the taxpayers were entitled to £4m each and noted that the taxpayers hadn’t argued that other sections and schedules of the SPA meant the consideration should be adjusted so couldn’t rule on this matter.

At the Upper Tribunal the taxpayers changed advisors but still didn’t have much luck.  The solicitor at the hearing only submitted new grounds for appeal days before the actual hearing and the Upper Tribunal refused permission for these new grounds due to a necessary adjournment to allow HMRC to prepare.

The UT found that the FTT hadn’t erred in law and therefore dismissed the taxpayers’ appeal.

The decision can be found at: MICHELLE McENROE (1) MIRANDA NEWMAN (2) v THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS [2023] UKUT 00255 (TCC) – GOV.UK (www.gov.uk)

It is common that transfers of business require the repayment of debt and that shareholders are selling their shares net of debt repayments.  It is important that when selling businesses that are held within companies that any debt repayments are clearly articulated and the headline price for the shares should be net of debt repayments.  This was a major drafting error on the part of the solicitors representing the taxpayers.  The taxpayers were also poorly represented in tribunal as no argument was made in the FTT about the necessary adjustments require the headline selling price to obtain the price paid for the shares, ie net of the debt repayment.

Please contact if you have any questions on capital gains tax.  The above case highlights that ensuing net figures are used in certain transactional documents is important. In this case, the taxpayers have had to pay £110k (before interest and possible penalties) due to poor advice.