Charles Ferguson-Davie & Anor v The Commissioners for HMRC
Decision date: 1 May 2024
Neutral citation: [2024] UKFTT 321 (TC)
Overall AI summary confidence: high
Short overview
This short overview is intended to summarise the case, issues and outcome so far as they are supported by the judgment.
AI confidence in this short overview: high
This appeal concerned whether carried interest distributions paid to partners of the CIP after 8 July 2015 were protected by the s.43(2) Finance (No.2) Act 2015 "grandfathering" where the underlying profits were generated by disposals before that date. The Tribunal found the carried interest "arose in connection with" the post-8 July 2015 disposal of Audley Court (which was necessary to meet the 9% IRR that triggered the carry), so the s.43(2) grandfathering did not apply and HMRC's closure-notice amendments were upheld. The Tribunal also held that qualifying corporate bonds (QCBs) are "assets" for TCGA purposes and that KA(2) can cover disposals of QCBs, but this did not change the outcome.
Ratio decidendi
This summary is intended to identify the ratio decidendi, meaning the legal reasons for deciding and the binding part of the decision.
AI confidence in this ratio decidendi summary: high
The operative ratio is that, for s.43(2) to grandfather carried interest, the carried interest must not "arise in connection with" a disposal occurring after 8 July 2015; that phrase is to be read with KA(2) and refers to the specific disposal which actually triggers entitlement to the carry (here the disposal that enabled the IRR to be met), not earlier disposals which generated underlying profits. Thus carried interest arising by reason of a post-cut-off disposal is not grandfathered even if most profit arose earlier.
Obiter dicta
This summary is intended to identify obiter dicta, meaning observations made by the way that were not necessary to deciding the case and are not binding.
AI confidence in this obiter dicta summary: medium
The Tribunal gave examples where grandfathering might sensibly operate — for instance where pre-8 July 2015 disposals crystallised entitlement but payment was delayed (eg escrow or timing of periodic allocations) — and rejected attempts to apportion carried interest between pre- and post-cut-off disposals as unsupported by the statutory language and impractical on the facts.