Michael Morter discusses a BADR court case – what does it mean for you?

In this video, Michael Morter, a Director in our Tax team outlines what our clients can learn from The Quentin Skinner 2015 Settlement V HMRC.

Guiding us through the case from the initial tax return 2015 to its outcome in the Court of Appeal five and a half years later, Michael highlights the back and forth between HMRC and the taxpayer and ultimately the taxpayers resilience. This video intends to showcase the ambiguity within tax laws and the importance of defending your claim to find certainty within the law.

We appreciate the cost and resources involved within the dispute process, Michael therefore also discusses how Price Bailey’s Tax Investigation Service can support individuals and businesses who are undergoing a tax investigation from HMRC. This service can potentially provide clients with funding the costs of an appeal and taking HMRC to the first tier tribunal.

If you should have any questions regarding content within this video, or wish to find out more about how Price Bailey’s tax team can support you, please use the form below to contact one of our experts.

Please note, this case circulates around Business Asset Disposal Relief, (BADR) which was previously known as Entrepreneurs Relief.

[Article updated January 20 2024,  video filmed in June 2023.]

7m 35 sec


00:02 –

Yes, my name is Michael Morter and I am a director in the tax team at Price Bailey and I specialise in personal taxes.

So today I’ll hear to talk about a case called the Quentin Skinner Settlements, and the case involves a series of trusts and capital gains tax.

So this case provides a really good example of how sometimes UK tax legislation is either unclear, or just not very certain and the lengths that have to be taken to reach that certainty.

This case examines three trusts and a claim for entrepreneurs relief. So people may have heard of entrepreneurs relief. It’s a relief from capital gains tax that reduces the rate of tax to 10%. So in this case there were shares that were sold. Normally the rate is 20% and this reduces it to 10%.

There are a number of conditions for entrepreneurs relief to be met and this case really just examines one of those.



Now I should say that since this case was heard, there have been other changes to entrepreneurs relief and actually it’s now called something else. It’s now called business asset disposal relief (BADR), but for the purposes of this I’ll call it entrepreneurs relief because that’s what was in place at the time. So we have a case here where there are three trusts and they all disposed of shares in a trading company and this sale happened in December 2015. A capital gain was made and so there was capital gains tax to pay and the trustees claimed entrepreneurs relief to reduce the rate of capital gains tax. Now they filed the tax returns on the basis that all of the various conditions for this relief were met, but HMRC didn’t agree and they opened an inquiry into these tax returns and there was some back and forth between HMRC and the taxpayer and, whilst they couldn’t agree, HMRC decided we’re correct and you can’t claim the relief.



The technical details here are that there is one particular condition of entrepreneurs relief which is just not clear in the legislation, and that is how long the beneficiaries have what is called an interest in possession in the trust. So an interest in possession is basically just an immediate entitlement to income from the trust and this must be in place to claim entrepreneurs relief. The beneficiaries of this trust also had shares in the same company and they met the conditions for entrepreneurs relief themselves. That’s one of the main conditions for trustees to claim it, but there also has to be this interest in possession in place, and the question really is, for how long does that need to be in place? The beneficiaries received that interest in possession in July 2015, so there were about five or six months that they had this interest in possession in place, but HMRC’s reading of the legislation was that this needed to be in place for a full 12 months, either 12 months up to the date of sale or, if the company ceased trading, at 12 months up to the date it stopped trading, and then the sale had to happen within three years after, which was the case here.


So HMRC went through their inquiry and they concluded that they were correct and that the relief could not be claimed, and so they charged more capital gains tax to the trustees.


But the trustees were fairly confident that they were still correct, so they took this to the first tier tribunal. This is where an independent tribunal refused the case and decided who is right the tax payer or HMRC. The tribunal focused on one particular part of law, which are shortened to section 169J, and they looked at the exact wording of the law, and nowhere does it say that this interest in possession has to be in place for 12 months before sale. So they essentially agreed with the tax payer and said we believe you’re correct, and they reversed HMRC’s inquiry decision. You think the story would end there, but actually HMRC were really really sure that they were correct and that this condition did need to be in place for a full 12 months, so they took it to the upper tribunal and the upper tribunal was heard in February 2021 and they examined the case that the revenue presented and they examined the first tier tribunal findings. But what the upper tier tribunal also did is they looked at another part of legislation, which is called section 1690, and they looked at those two pieces of legislation together and said, in a normal reading of the words, they believe that this condition did need to be in place for a full 12 months and therefore they disagree with the taxpayer, and they agreed with HMRC that more capital gains tax had to be paid. So it was a bad outcome for the tax payer at the time.



The story didn’t end there either and the tax payers took it to the final stage, which is the England and Wales Court of Appeal, and that was heard in September 2022, so a full five and a bit years after the original tax returns went in, and the Court of Appeal looked through all of the previous decisions and really went back to what the first tier tribunal said is that, if you look at the exact wording, nowhere in that particular section of law does it say that this condition needs to be in place for a full 12 months and therefore the taxpayer is right and the relief could be claimed. So there are a few things that can be learned from this case.

Firstly, because the taxpayer was able to take HMRC all the way through the tribunals and to the Court of Appeal, this gives us a finite answer. So any other taxpayers in the exact same circumstance now know what the law means because this case has been heard and this decision has been made. So there’s real certainty there for people who are in that exact same circumstance.



But what we can also learn from this case is that it can take a bit of resource to be able to defend your claim. This tax return was filed probably sometime in 2016, if not January 2017, and it was a full five and a half years until the final decision was made. I’m sure there was a lot of professional costs and time and probably a lot of worry and uncertainty for the taxpayer over that period of time until they got to what ended up being a good conclusion.


Yeah, so Price Bailey’s Tax Investigation Service is a really useful tool for our clients. It is essentially a policy that the client chooses to sign up for each year and it provides protection for the client against professional costs and, in particular, our fees in dealing with HMRC inquiries.



So without the Tax Investigation Service in place, a taxpayer may not just have the resources to be able to defend their claim with HMRC. It’s always recommended to have an advisor helping you when there is an inquiry to make sure that your case is put forward in the right way and all the technical aspects are dealt with correctly. And without the Tax Investigation Service, that can be very expensive. So without that cover, it could be that the taxpayer simply had to give in to HMRC even though they ended up being correct and would have had a lot more capital gains tax to pay. So our Tax Investigation Service can cover the costs of an appeal and taking HMRC to the first tier tribunal. It does obviously need the prior approval of our insurer to make sure they’re happy that the taxpayer is correct, but it’s really useful that it extends to that.


We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.


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