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Osmond and others v HMRC

The transactions in securities (TIS) rules are, very broadly, designed to prevent individuals from obtaining an income tax advantage by converting income into capital. The taxpayers here took part in a purchase of own shares which benefited from CGT EIS relief. HMRC raised a TIS assessment and on appeal the tribunal was faced with unchallenged evidence that the purpose of the transaction which the taxpayers had entered into was to preserve their entitlement to capital gains tax EIS relief. They were concerned about its possible abolition if there was a change in government. It was accepted that the taxpayers never had any intention of extracting money from the companies by way of dividend.

HMRC assessed the taxpayers under the TIS rules. It argued that a claim for CGT EIS relief necessarily brings an income tax advantage and therefore the main purpose of the transaction ― whatever the stated intent of the taxpayers ― must have been to obtain that advantage. The FTT described that analysis as, ‘at first