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Conegate Ltd v HMRC – FTT decision

Conegate Ltd v HMRC – FTT decision

The FTT rejected a claim for capital losses in respect of arrangements involving the conversion and repurchase of shares.


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The taxpayer entered into arrangements involving the purchase of shares in a company controlled by the taxpayer, followed by conversion of those shares into a different class which was intended to lower their value, allowing for them to be repurchased for a lesser amount. This would generate a capital loss, but the taxpayer argued that this was not the primary intention of the transactions, which were intended to generate funding for a football club. HMRC denied the relief for the capital losses, and the First-tier Tribunal (FTT) has rejected the taxpayer’s appeal against this finding.

Applying section 29 of TCGA 1992 the Tribunal found that the taxpayer was treated as having disposed of ordinary shares and received consideration of deferred shares in exchange, which had a total value of £1. The FTT found that the consideration that could have been received was considerably higher, and the taxpayer had not presented evidence to support an argument that it could not have achieved greater consideration than £1. Therefore, the disposal must be treated as not being at arm’s length, with the market value of the shares standing in the place of the actual consideration received for the purposes of calculating the capital loss.

In addition, while the transactions had been intended to generate funding for the football club, the FTT found that Section 16A TCGA 1992 only required the securing of a tax advantage to be “one of the main purposes” not “the main purpose” of the arrangements, and so would have denied relief on this basis if the above arguments had been successful for the taxpayer.

The case also considered preliminary issues regarding the waiver of privilege. HMRC claimed that the taxpayer had waived privilege in respect of communications between them and their legal advisors because it had relied on this material in a witness statement, but the taxpayer denied such a waiver had been made. The FTT concluded that privilege had been waived, and consequently drew adverse inference from the taxpayer’s failure to disclose these documents.

For further information please contact:

Stephen Whitehead


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