Despite their sometimes fearsome reputation, HM Revenue and Customs (HMRC) are not all powerful and, with the benefit of sound legal advice, any wrong decisions that they make can be overturned. That happened in one case in which a businessman escaped an £830,000 Capital Gains Tax (CGT) demand following the sale of his family company.
The man parted with his shares in the company in return for shares in another. In his tax return he valued his proceeds from the transaction at £36 million. In the following tax year, he sold his shares in the purchaser company for over £44 million. In those circumstances, HMRC argued that he had carelessly under-declared the benefit that he had received for CGT purposes and issued the demand.
In upholding his appeal, however, the First-tier Tribunal noted that he had based his valuation on a £36 million offer that he had received for his shares from another bidder shortly before the sale went through. He had taken advice from a leading accountancy firm and, in the circumstances, had behaved as a reasonable and prudent taxpayer. The CGT demand was overturned.