Allum & Allum v Marsh

SP C 2004, [2005] SSCD 191 (SP C 446)

A married couple acquired a company which carried out a trade for many years with the couple as its sole directors.  In 2000, the company took on their son as a third director and issued him with shares in the company.  Following disagreements between the father and the son, the parents approached their accountants to consider tax-efficient ways that they could retire from the business without having to sell the company outside the family.  

As a result, the company bought back their shares and they resigned from their directorships the next day.  In the same month, the company sold its trading premises to a property developer.  The majority of the sale proceeds were used to purchase the parents’ shares and the company continued to trade from rented premises.  The company submitted their self assessment tax returns on the basis that the buy-back of shares should be treated as a capital distribution in accordance with ICTA 1988, s219(1).

 HMRC issued an amendment to their self assessment on the basis that the distribution should be treated as an income distribution on the grounds that the share buy-back did not benefit the company’s trade.

It was held that the transaction did not benefit the company’s trade as it was left without permanent premises and that the main purpose was not to benefit the trade but to facilitate the couple’s retirement.