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Where Taxpayers and Advisers Meet
Tax Clearances on Shares and Loan Notes
01/03/2002, by Mark McLaughlin CTA (Fellow) ATT TEP, Tax Articles - General
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Forbes Dawson by Michael Dawson MA(Cantab) FCA ATII

In today's uncertain world, how certain can an accountant or tax adviser be how the Inland Revenue will view a particular transaction? Michael Dawson of Forbes Dawson considers the extent to which clearance applications to the Inland Revenue provide comfort.Jeffrey Skilling, the former Enron Chief Executive, is reported to have blamed his ignorance on the Company’s financial troubles on the fact that he was not an accountant! In today’s uncertain world even the most qualified tax advisor cannot be certain how the Inland Revenue will view particular transactions. For this reason the ability to obtain statutory clearances is a vital safeguard for the client where large sums of money are involved.

The Inland Revenue are, in general, unwilling to express a formal view of transactions before they take place. Thankfully, they are obliged under the legislation to provide specific clearances for sales of shares. Further they have a strict time limit of 30 days to provide the clearance or to request further information.

A successful Inland Revenue clearance is, however, not a total panacea; the view expressed by the Revenue is limited to a statement that they will not apply a specific anti avoidance section. They also issue a standard disclaimer that leaves the ultimate decision on whether reliefs are available to the Local Inspector concerned.

The clearance can only be relied upon if all the relevant information about the transaction is provided. If, for instance, important information about the taxpayer’s future intentions is left out, the clearance could become null and void. A well set out clearance application can also serve to avoid detailed enquiries from the Inspector when the Self Assessment tax return is later submitted, often at a much later date.

Under Gordon Brown’s new regime of capital gains tax on business assets, the levels of CGT on the sale of shares are extremely favourable compared with the 40% income tax rate. Where shares have been held for more than two years, the effective rate of CGT can be as low as 10%. A Section 707 ICTA clearance provides comfort that lower capital gains rates of tax will apply.

For commercial reasons the purchaser often wants to pay part of the consideration on a deferred basis. This assists cash flow and may be linked to the warranties that the vendor has given. Where the purchaser is a listed company, it is also common for new shares to be issued as part of the deal.

Where ‘paper’ ie. loan notes or shares, is issued, capital gains can be rolled over until the future date of encashment or disposal. A specific clearance for this is available under Section 138 TCGA.

The Inland Revenue have challenged the availability of business asset taper relief on loan notes issued in exchange for shares. Fortunately they have now accepted that loan notes constitute business assets for taper relief purposes where other conditions are complied with. The loan notes must not be “Qualifying Corporate Bonds”, requiring a degree of complexity in the legal drafting.

If you require any further information on this subject, please do not hesitate to contact Michael Dawson on 0161 245 1090, or by e-mail at

About The Author

Mark McLaughlin is a Fellow of the Chartered Institute of Taxation, a Fellow of the Association of Taxation Technicians, and a member of the Society of Trust and Estate Practitioners. From January 1998 until December 2018, Mark was a consultant in his own tax practice, Mark McLaughlin Associates, which provided tax consultancy and support services to professional firms throughout the UK.

Mark is now a consultant with The TACS Partnership,  an independent tax advisory firm that provides high quality, independent advice on all UK taxation matters.

He is a member of the Chartered Institute of Taxation’s Capital Gains Tax & Investment Income and Succession Taxes Sub-Committees.

Mark is Chief Contributor to McLaughlin’s Tax Case Review, a monthly journal published by Tax Insider.

Mark is the Editor of the Core Tax Annuals (Bloomsbury Professional), and is a co-author of the ‘Inheritance Tax’ Annuals (Bloomsbury Professional).

Mark is Editor and a co-author of ‘Tax Planning’ (Bloomsbury Professional).

He is a co-author of ‘Ray & McLaughlin’s Practical IHT Planning’ (Bloomsbury Professional) 

Mark is also co-author of ‘Incorporating and Disincorporating a Business‘ (Bloomsbury Professional).

He is Editor and co-author of ‘HMRC Investigations Handbook‘ (Bloomsbury Professional).

Mark has also written numerous articles for professional publications, including ‘Taxation’, ‘Tax Adviser’, ‘Tolley’s Practical Tax Newsletter’ and ‘Tax Journal’, which provides free information and resources on UK taxes to taxpayers and professionals, and TaxationWeb’s sister site TaxBookShop.

Mark is a Director of Tax Insider, and Editor of Tax Insider, Property Tax Insider and Business Tax Insider, which are monthly publications aimed at providing tax tips and tax saving ideas for taxpayers and professional advisers. He is also Editor of Tax Insider Professional, a monthly publication for professional practitioners.

Mark is also a tax lecturer, and has featured in online tax lectures for Tolley Seminars Online.

Mark co-founded TaxationWeb ( in 2002.

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