Explainaway: Statutory Interpretation (Tax Newsletter, Summer 2011)

The First Tier Tribunal here looked at a capital gains mitigation scheme involving matching futures and, by construing the legislation purposively and looking at the transactions as a whole, determined that a loss suffered as a result of the reduction in value of shares was not allowable.

Transactions constituted a single and indivisible whole

This case is complicated by the fact that the taxpayers had a Plan A (which was not fully completed) and a Plan B for mitigating a capital gains liability arising from a share sale. Broadly, both involved group companies entering into two futures on matching but opposite terms, one of which would produce a loss and one a profit. The derivatives were based on movements in the FTSE and therefore it was not known which would create a loss and which a profit, nor what the quantum of the desired loss would be. However, it was hoped that the loss achieved would be sufficient to offset the taxable gain realised on the sale of the shares.

A review of anti-avoidance case law led inexorably to...