Upper Tribunal upholds HMRC’s £4m EIS ruling

The Upper Tribunal has upheld a verdict by HM Revenue & Customs to deny tax relief to an enterprise investment scheme by Segasta, the holding company for Blackpool Football Club.

The Upper Tribunal has dismissed an appeal by Segesta over the blocking of capital gains tax relief on a £4m investment.

On 16 December 1999, Segesta borrowed £4,147,413 from National Westminster Bank plc, which was transferred into the bank account of Blackpool Football Club.

BFC paid an equivalent sum into Segasta’s principal shareholder Owen Oyston’s personal bank account.

Mr Oyston then transferred an equivalent sum to Segesta to make the investment at issue on this appeal, by subscribing for 276,494 ordinary £1 shares in 20 Segesta at £15 per share; and Segesta then reduced its loan from National Westminster Bank plc by the amount of £4,147,413.

Mr Oyston claimed CGT relief on the investment in Segesta.

He claimed Segesta qualified as an EIS meaning his investment in it, a subscription of shares, qualified for relief.

However, HMRC claimed the shares were ineligible under EIS rules due to the benefit Mr Oyston received from the transaction.

Shares are ineligible for EIS investment relief where the subscriber receives value from the company being invested in at any time during seven years after the investment.

HMRC said Mr Oyston benefited from the investment, as it allowed Segesta to provide Blackpool with funds to repay loans made on Mr Oyston’s behalf. The Upper Tribunal upheld HMRC’s verdict.

A spokeperson for HMRC said: “HMRC welcomes the decision of the Upper Tribunal, which has upheld the 2010 decision of the First-tier Tribunal and has robustly confirmed HMRC’s established interpretation of the relevant provisions of the enterprise investment scheme legislation.”