Furniss v Dawson
Where there is a pre-ordained series of transactions, and steps are inserted which have no commercial purpose apart from the avoidance of tax, the inserted steps are disregarded for tax purposes.
Facts
The Dawson family wished to sell their shares in two family companies to an outside purchaser, Wood Bastow. To defer capital gains tax, they first exchanged their shares for shares in a newly formed Isle of Man company, Greenjacket, which then immediately sold the shares to Wood Bastow for cash. A share exchange of that kind was not treated as a disposal for capital gains tax, so that the gain would be deferred until the Dawsons disposed of their Greenjacket shares. The steps had been arranged in advance, and the interposition of Greenjacket had no commercial purpose except the deferral of tax.
Legal principle
The House of Lords held that the Dawsons were liable to capital gains tax as if they had sold their shares directly to Wood Bastow. Lord Brightman said that the Ramsay principle applies where there is a pre-ordained series of transactions, or a single composite transaction, which may or may not include the achievement of a legitimate commercial end, and where steps are inserted which have no commercial or business purpose apart from the avoidance of a liability to tax. In such a case, the inserted steps are to be disregarded for fiscal purposes, and the court must look at the end result. The principle was not limited to self cancelling schemes which produced no real change in the taxpayer's position.
Related cases on tax avoidance, statutory interpretation and the Ramsay principle
- Barclays Mercantile Business Finance Ltd v Mawson [2004] UKHL 51, [2005] 1 AC 684
- Cadbury Schweppes plc v Commissioners of Inland Revenue (2006) Case C-196/04
- Craven v White [1989] AC 398
- Inland Revenue Commissioners v Duke of Westminster [1936] AC 1
- MacNiven v Westmoreland Investments Ltd [2001] UKHL 6, [2003] 1 AC 311
- UBS AG v Revenue and Customs Commissioners [2016] UKSC 13
- WT Ramsay Ltd v Inland Revenue Commissioners [1982] AC 300
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This summary is for study and revision and is not legal advice. Although our case summaries are checked for accuracy, we do not guarantee that they are free from errors or omissions. Always read the full judgment for the court's reasoning.
