The Trustees of the Morrison 2002 Maintenance Trust & Ors v Revenue and Customs, [2019] EWCA Civ 93

A scheme for the avoidance by three trusts (the “Scottish Trusts”) of capital gains tax on the sale of a bloc representing approximately 2% of the shares of a listed company (”AWG”) turned on considering that the exercise by the Scottish Trusts of a put to sell the AWG shares for their base cost of £4.5M to trusts (the “Irish Trusts”) with similar terms did not occur (under the Ramsay approach) as part of a single composite transaction which included their sale eight days later to Merrill Lynch for their market value of £14.3M, who then sold the shares into the market. Under this approach, as summarized in Furniss v. Dawson (quoted at para. 27):

First, there must be a pre-ordained series of transactions; or, if one likes, one single composite transaction. … . Secondly, there must be steps inserted which have no commercial (business) purpose apart from the avoidance of a liability to tax - not 'no business effect.' If those two ingredients exist, the inserted steps are to be disregarded for fiscal purposes. The court must then look at the end result. … (underlining added)

The Scottish Trusts submitted inter alia that it was significant that at the time of exercise of the put, it was contemplated that the Irish Trusts would on-sell their AWG shares into the market (through the agency of Merrill Lynch), whereas in fact the shares were sold to Merrill Lynch as principal for what effectively was a partially underwritten price.

In finding that there was a single composite transaction, so that the transaction was to be treated as if the Scottish Trusts had disposed of their AWG shares for £14.3M, Newy LJ stated (paras. 51-52, 56-57):

If, as was the case in Craven v. White, there is real doubt, for reasons unrelated to a desire to escape the Ramsay approach, as to whether a tax-saving scheme will be put into effect, it is easy to understand why the requisite "pre-ordained series of transactions" or "single composite transaction" should not be considered to exist. In such circumstances, inability to identify an ultimate purchaser and price is symptomatic of uncertainty as to whether the sale will happen at all.

It by no means follows that the Ramsay approach should be incapable of applying wherever the ultimate purchaser and price cannot be identified. …

The FTT considered that the sale to Merrill Lynch "sufficiently corresponded to the scheme as planned" and commented that it "would be extraordinary if the application of the Ramsay approach could be defeated by the sale being to brokers rather than to the market by brokers on behalf of the Irish Trustees" … . The UT held that the FTT had been entitled to conclude that the involvement of Merrill Lynch made no material difference … .

I agree.

Three “Scottish Trusts” exercised their put to sell shares of a listed public company to trusts (the “Irish Trusts”) with similar terms for the shares’ cost base of £4.5M; and the Irish Trusts sold the same shares eight days later to Merrill Lynch for £14.3M, who then sold the shares into the market. Newey LJ confirmed the findings below that the put exercise and subsequent sale were a "pre-ordained series of transactions" (a.k.a., a "single composite transaction") under the Ramsay doctrine so that the transactions were to be treated for U.K. capital gains purposes as if the Scottish Trusts had disposed of their shares for £14.3M.

The Scottish Trusts submitted inter alia that it was significant that at the time of exercise of the put, it was contemplated that the Irish Trusts would on-sell their shares into the market (through the agency of Merrill Lynch), whereas in fact the shares were sold to Merrill Lynch as principal for what effectively was a partially underwritten price. Newey LJ stated (at paras. 56-57) that he agreed with the First-tier Tribunal:

that the sale to Merrill Lynch "sufficiently corresponded to the scheme as planned" and … it "would be extraordinary if the application of the Ramsay approach could be defeated by the sale being to brokers rather than to the market by brokers on behalf of the Irish Trustees" … .