Overview

The Court of Appeal upheld by majority decision an appeal from HMRC from the decision of Mann J in the case of HMRC -v- Smallwood and another [2010] EWCA Civ 778, which concerned a capital gains avoidance scheme referred to as the ‘Round the World’ scheme.

The idea behind the scheme was to avoid a capital gains tax charge on the disposal of two shareholdings by the trustees of a trust settled by a UK-resident individual. The UK-resident trustees of the trust were replaced part way through the tax year by a trustee company that was resident in Mauritius and it was that trustee that effected the disposals. The Mauritian trustees were also then replaced before the end of the tax year by UK-resident trustees (the settlor and his spouse being appointed). The scheme sought to avoid a charge to tax under s.86 TCGA by ensuring that the trustees were UK resident at some point during the tax year, thus excluding the operation of that section. It was also sought to avoid a charge to tax under s.77 TCGA by claiming relief under the UK/Mauritius double tax treaty on the basis that at the point that the shares were disposed of, the trustees were not resident in the UK and so taxing rights arose only in Mauritius, which did not tax capital gains. The key point in the case was the right to claim relief under the treaty.

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