With a new Labour government and an Oasis tour on the horizon, it feels like a flashback to the 1990s, but, this time around, Cool Britannia seems more likely to refer to a conflicted attitude towards the state of the nation, than an expression of 1990s optimism.
The stark difference in the cost of seeing Oasis live in 2025 compared to 1997 is a striking illustration of the much higher cost of living and more parlous public finances faced by Keir Starmer and Rachel Reeves than was the case 30 years ago.
All of this sets the tone for Labour's first budget and a distinct back-to-school feel, as the Government readies itself to implement a curriculum of reforms that were pledged on the campaign trail. Technical advice and draft legislation on removing the VAT and business rates exemptions for private school fees has already been published. Reform of the non-dom regime pre-dates this Government and we can expect further details of Labour's approach to this.
While it may not grab the headlines, given the focus placed on combatting tax avoidance in its manifesto, we are likely to see continued scrutiny in the avoidance space as well, along with a renewed commitment to provide further resources to HMRC.
More scrutiny brings a greater number of investigations and, inevitably, more tax appeals coming through the courts. One area these appeals might build on could be the steady stream of cases that we have seen in relation to main purpose tests in the tax legislation, which seek to deny tax benefits to taxpayers who structure their affairs with an "unallowable purpose". This has resulted in a lot of judicial commentary on the nature of a taxpayer's motives, sometimes with quite conflicting results.
With all the changes over the last few months and the eye-catching tax changes that have been (or will be) announced, it is therefore worth reflecting on a trend towards examining taxpayer motive that shows no sign of changing, irrespective of the change in government.
We provide a round-up below of our recent commentary on this and other areas of focus at the moment. Unlike Oasis tickets, this newsletter is not dynamically priced so that it is immediately available to all of its fans.
What's the story? The importance of a clear commercial narrative
The Court of Appeal's decision in BlackRock Holdco 5, LLC v HMRC [2024] EWCA Civ 330 earlier this year has generated a lot of interest. The case concerned the taxpayer's claim for tax relief for interest costs arising on loans from another group entity based in the US. HMRC rejected the claim on grounds of both transfer pricing and unallowable purpose. Despite finding for the taxpayer on the transfer pricing issue, the Court agreed with HMRC that the loans had an unallowable purpose such that the interest deductions should be disallowed. This is, predominantly, because the entity BlackRock Holdco 5 had no other purpose but to enter into the loans to obtain a tax advantage for the BlackRock Group. Although the decision in BlackRock is based on the particular facts of that case, it does give taxpayers something to consider when undergoing commercial structuring. Sophie Rhind considers the decision in an article for PLC magazine.
Bezhan Salehy and Elvira Colomer Fatjó discuss the decision in BlackRockalongside another recent HMRC win in the Court of Appeal on the loan relationships unallowable purpose rule, Kwik-Fit Group Limited & Ors v HMRC [2024] EWCA Civ 434, and consider that the decisions leave taxpayers with a high level of uncertainty over what is an allowable purpose in an intra-group lending arrangement and what is not.
Tax planning half the world away in JTI
In June, the Court of Appeal handed down its latest decision in its series of cases concerning the loan relationship unallowable purpose rule: JTI Acquisitions Company (2011) Ltd v HMRC [2024] EWCA (Court of Appeal Judgment Template (nationalarchives.gov.uk).
As in the BlackRock case (discussed above), JTI involved the application of the rule to an acquisition financing structure used by a US group to acquire a US business. The Court of Appeal agreed with the First-tier Tribunal that the relevant loan in the JTI structure had an unallowable purpose of securing a UK tax advantage. As was the case with BlackRock, the Court found it to be relevant that the borrowing company had no other purpose but to secure the tax advantage for the wider group.
The JTI decision reinforces that a wider group's intentions and the reasons for a company's involvement in a structure are relevant considerations when assessing purpose. Alongside the other recent Court of Appeal cases JTI goes some way towards clarifying how the unallowable purpose rule should be applied in practice (although individual cases will be highly fact-dependent, and it remains to be seen how the courts would apply the rule in other situations).
Do you know what I mean? Subjective intention in Osmond
The unallowable purpose test in the Transactions in Securities rules has given rise to a noteworthy decision from the First-tier Tribunal in the recent case of Osmond and ors v HMRC [2024] UKFTT 00378 (TC). The FTT found that because the taxpayers intended to benefit from relief from capital gains tax on their Enterprise Investment Scheme shares, it followed that they had a main purpose of obtaining an income tax advantage. This is despite the fact that the FTT found as a fact that the taxpayers did not actually have any intention of seeking an income tax advantage and would not have structured the transaction differently. Jackelyn West takes a look at the decision and how it fits (or does not fit) into the current commentary from the Courts on purpose.
Definitely maybe: dealing with uncertain HMRC guidance
The UK's tax legislation is accompanied by a large body of "guidance" from HMRC. This guidance can be of great value to the general public as it sets out HMRC's view of how the law, such as the anti-avoidance provisions discussed above, will apply in practice. But guidance is not law, and with HMRC's recent efforts to retrospectively change their views, taxpayers need to take care when seeking to rely on HMRC's guidance. Sarah Ling and Jack Slater consider the approach taxpayers and advisors should take when reading HMRC's guidance in a recent article for Tax Journal.
Some might say: developments in the case law
The Supreme Court has provided further guidance on the deductibility of M&A deal fees in Centrica Overseas Holdings Ltd v HMRC [2024] UKSC 25. The decision involves the disposal of an asset held by an investment holding company. The general rule is that investment holding companies can deduct their "expenses of management" but the legislation excludes deductions for expenses which are "of a capital nature".
Uncertainty over which category an expense falls into has generated a significant amount of case law. Krishan Patel looks at the Supreme Court's decision in Centrica and considers the practical implications arising for corporate taxpayers.
Don't look back in anger: the scope and effect of rectification in tax cases
The equitable remedy of rectification may be available to correct a written agreement where that agreement does not reflect the common intentions of the parties. This could arise in the tax sphere where, for example, a taxpayer mistakenly fills out the incorrect forms to apply for a relief. A party seeking an equitable remedy would usually need to file a claim in the High Court. The First-tier Tax Tribunal does not have jurisdiction to order an equitable remedy, but a line of cases has found that the Tribunal will consider whether the High Court would grant a claim for rectification, and then proceed to determine the appeal on the basis that the remedy had been obtained already. Gideon Sanitt and Sophie Rhind consider the existence of this power in the First-tier Tribunal in a recent article for Tax Journal.
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