HM Revenue & Customs defeats tax-relief scheme at tax tribunal

A ruling last month said an incorrect level of tax relief was claimed on the donation of shares to the National Eczema Society and the Alzheimer's Society

HM Revenue & Customs
HM Revenue & Customs

A tax-relief scheme in which a man claimed an incorrect level of relief on donations of shares to the National Eczema Society and the Alzheimer’s Society has been defeated at tribunal by HM Revenue & Customs.

The decision should lead to more than £35m of tax being paid because similar schemes will become illegal, HMRC said.

A ruling handed down by the First-tier Tribunal (tax chamber) last month said that two gifts of 118,750 shares of 0.1p each made to the two charities in 2008 did not have a market value £1 per share – or £237,500 overall – as claimed by Nicholas Green, in a scheme designed by the Manchester-based tax consultancy Afortis Ltd.

There is no suggestion that the charities had any involvement in the scheme.

The tribunal said that the shares in Chartersea Ltd, listed on the Channel Islands stock exchange, had a market value of 35p each, which meant that Green’s tax relief could total only £71,250, and would therefore increase his tax liability by £154,375.

HMRC originally ordered Green to reduce his tax-relief declaration in June 2011. He appealed against HMRC's valuation of the shares at 30p each the following month.

The tribunal sat for the three days to 1 May 2013, with Judge Malcolm Gammie QC then deliberating for a year before handing down the judgment on 28 April this year. The decision is open to appeal for eight weeks.

A spokesman for HMRC said he did not expect any aspect of the ruling to be subsequently overturned. As a result of the ruling, "other such schemes by default fall over, so £35m of tax is protected", he said.

The spokesman said HMRC could not reveal whether Afortis or other companies were involved in these other schemes.

Nicky Morgan, the Financial Secretary to the Treasury, said: "This case is further evidence of HMRC’s tough action to tackle tax-avoidance schemes that seek to abuse charitable giving tax reliefs.

"Taxpayers entering into these arrangements are not only damaging their own reputations; they are harming the reputations of charities that may not be aware they are being used to avoid tax."

Chartersea is a fabricator of uPVC Windows, registered in Liverpool, which had an income of £4.2m and profit of £45,508 in the year to 31 March 2013. Geoffrey Dallimore, who gave evidence to the tribunal, is a director of both.

A spokeswoman for the National Eczema Society said that the charity still held the shares, but was not sure of their current value. The Alzheimer’s Society declined to comment.

Neither Afortis nor Chartersea could be contacted for comment.

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