<center><span class="news-text_medium">Court:</span> Upper Tribunal (Tax and Chancery)</center>
<center><span class="news-text_medium">Judgment Date:</span> 2 September 2026</center>
In <span class="news-text_italic-underline">The Executors of Paul Hunt & Ors v The Commissioners for HMRC [2026] UKUT 342 (TCC)</span>, the appellants were the executors of Paul Hunt and two other shareholders of Golf Holdings Ltd, an English company. Following earlier share-for-share acquisitions, approximately £32.9 million had been credited to the company’s share premium account. In April 2015, the company reduced its capital and credited £10 million to the shareholders’ loan accounts. It also had distributable reserves exceeding that amount.
The shareholders reported the sums received as capital subject to capital gains tax. HMRC issued counteraction notices under the transactions in securities legislation, taking the view that the receipts fell within the income tax rules. The dispute before the Upper Tribunal centred on whether the exclusion in section 685(6) of the Income Tax Act 2007, as it stood in 2015, applied to the capital reduction.
The tribunal addressed two questions of statutory interpretation. First, HMRC argued that section 685(6) mistakenly referred to subsections 685(2)(a) and (b), rather than provisions defining “relevant consideration”. The tribunal declined to correct the cross-reference. The wording had appeared in draft legislation from the outset and its ordinary reading did not produce a result so untenable that the tribunal could be sufficiently certain Parliament had made an inadvertent mistake.
Secondly, the shareholders argued that section 685(6) excluded a return of subscribed capital even where the company could not lawfully distribute that capital by dividend. The tribunal disagreed. Reading the provision in its legislative context, it held that the phrase “despite the fact that” introduced a condition: the exclusion concerned companies which, under the law of their place of incorporation, could lawfully distribute subscribed capital by way of dividend. It did not apply to Golf Holdings Ltd’s capital reduction.
The Upper Tribunal therefore dismissed the shareholders’ appeal and upheld the First-tier Tribunal’s conclusion, while also rejecting HMRC’s drafting-error argument. It acknowledged that the result did not produce the consistent treatment for which either side had argued but held that it could not depart from the statutory wording to achieve a more coherent outcome.
The decision concerns the transactions in securities provisions in force for the 2015 transaction, before amendments made by the Finance Act 2016 took effect. It illustrates the importance of checking both the applicable version of the legislation and the company’s law of incorporation when assessing the tax treatment of a repayment of subscribed capital.
