Neutral Citation Number: [2006] EWHC 3350 (Ch)
Case No: CH/2006/APP/0401
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM THE SPECIAL COMMISSIONERS

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 21 December 2006

Before :

THE CHANCELLOR OF THE HIGH COURT
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Between :

	VINCENT SNELL	Appellant	
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	THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS	Respondents	

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Mr Jonathan Peacock QC (instructed by DLA Piper Rudnick Gray Cary UK LLP) for the Appellant
Mr David Ewart QC (instructed by HMR&C) for the Respondents

Hearing dates: 12th and 13th December 2006
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Judgment
The Chancellor : 
1.	The appellant, Mr Vincent Snell, was the beneficial owner of 91% of the issued capital in Sovereign Rubber plc (“the Company”).   On 21st December 1996 he entered into an agreement (“the Sale Agreement”) with Inhoco 564 Ltd for the sale of his shares for a total consideration of £7,317,000 payable as to £6,580,000 in loan stock of three separate classes, £537,000 in deferred consideration and £200,000 in payment of his costs.  Mr Snell left the United Kingdom on 2nd April 1997.  Initially he went to live in the Isle of Man.  At the end of that year he moved to the Cayman Islands where he has lived ever since.  On 8th July 1997 Mr Snell redeemed £5,630,000 of the ordinary loan stock.
2.	In due course Mr Snell was assessed to capital gains tax on the disposal of his shares in the Company in respect of the deferred consideration (£537,000) and the contribution to his costs (£200,000).  With regard to the balance of the consideration he claimed the benefit of ss.135 and 127-131 Taxation of Chargeable Gains Act 1992 whereby the loan stock was to be treated as the same asset as his shares in the Company thereby deferring the accrual of any chargeable gain until the loan stock was redeemed.   This claim was disputed by the Inland Revenue on the grounds that s.137 TCGA precluded the application of the provisions on which Mr Snell relied.
3.	S.137(1) TCGA provides:
“.....neither section 135 nor section 136 shall apply to any issue by a company of shares in or debentures of that company in exchange for or in respect of shares in or debentures of another company unless the exchange, reconstruction or amalgamation in question is effected for bona fide commercial reasons and does not form part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoidance of liability to capital gains tax...”

4.	After a lengthy, and largely unexplained, delay the question whether s.137 precluded the application of ss. 135 and 127-131 TCGA to the disposal by Mr Snell of his shares in the Company came before the Special Commissioners on 6th to 8th March 2006.  They heard oral evidence from Mr Snell and others.   For the reasons given in their decision dated 5th April 2006 they determined that:
(1) the exchange by Mr Snell of his shares in the Company for the three separate classes of loan stock in Inhoco 564 Ltd to the aggregate value of £6,580,000 was “effected for bona fide commercial reasons”; but that
(2) such exchange did “form part of a scheme or arrangements of which the main purpose, or one of the main purposes, [was] the avoidance of liability to capital gains tax”.

Accordingly they concluded that ss. 135 and 127-131 TCGA did not apply with the consequence that Mr Snell is liable for capital gains tax in the additional sum of £2,634,586 together with interest.
5.	Mr Snell now appeals from the second of those conclusions and HM Revenue and Customs from the first.  Logically the appeal of HM Revenue and Customs precedes that of Mr Snell and I will deal with it first.

Was the share exchange effected for bona fide commercial reasons?

6.	There is, of course, no issue in relation to the deferred consideration or to the contribution to the costs.  The £6,580,000 loan stock consideration payable to Mr Snell was divided into three classes, namely £450,000 1998 Loan Stock, £500,000 1999 Loan Stock and £5,630,000 ordinary loan stock.  The different conditions applying to each class and the reasons for them were set out and explained by the Special Commissioners in paragraph 9(8) to 9(10) of their decision in the following terms:
“(8) .... The differences between the three types of loan stock are summarised in the following table:

		Ordinary loan stock	1998 loan stock	1999 loan stock		
	Loan stock redemption	31.3.1999	31.3.2000	31.3.2000		
	Earliest redemption date	5.7.1997	31.12.1999 (or 5.7.1997 if no NIC liabilities)	31.12.9999		
	Transferable	At any time	After 31.12.1999	After 31.12.1999		
	Set-off	Against any warranties	Against NIC liabilities	Against any warranty (in priority to the ordinary loan stock)		
	Guaranteed	Yes	Yes	Yes		
	Interest rate	4.5% variable	4.5% variable	4.5% variable		

(9) The 1998 loan stock dealt with a potential liability in respect of National Insurance and PAYE in relation to payments of remuneration to the appellant in gold bullion, diamond vouchers and gold coins.  Such liability was set off against this loan stock.  If the matter had not been resolved by 31 December 1998 the appellant had to provide alternative security of £450,000.

(10) The sale agreement provided for the following order of set-off of warranty claims:  (1) the 1997 part of the deferred consideration; (2) the 1998 part of the deferred consideration; (3) a charge over land owned by the appellant valued at £150,000 and leased to Sovereign for £15,000 pa; (4) the 1999 loan stock; (5) 'so far as possible by the exercise of the Purchaser's contractual or other remedies available to it in law'.”

7.	In paragraph 3 of their decision the Special Commissioners recorded the arguments of counsel for Mr Snell and those of counsel for the Inland Revenue and their conclusion on them in the following terms:
“[Counsel for Mr Snell] concentrated on the reason for the issue of the loan stock, and [Counsel for HM Revenue and Customs] on the reason for the appellant choosing loan stock rather than cash.  We are not convinced that one should make a comparison with a different transaction, a sale for cash, and ask if the exchange for loan stock, rather than cash, was effected for bona fide commercial reasons.  Such a comparison that can fairly easily be made for an exchange of shares for short-term loan stock but much less easily for a share for share exchange or a reconstruction (which implies continuity of ownership) or amalgamation.  We consider that one should take the actual transactions carried out, here the sale of shares to a third party in exchange for three different types of loan stock, and ask whether that was carried out for bona fide commercial reasons.  On this basis [Counsel for HM Revenue and Customs] concedes that it is, and in any case we so find.  In case we are wrong about this interpretation we shall make finding of fact in relation to the parties' contentions later in this decision.”

8.	The alternative finding to which they referred is contained in paragraph 17 of the decision.  In that paragraph they concluded that:
“In relation to the first limb of s 137, if we are wrong on our interpretation and it is necessary that the decision to take loan stock instead of cash was made for bona fide commercial reasons, we do not find that it was.  We consider that the appellant wanted loan stock for tax reasons and would not have agreed to cash.  The purchaser found that loan stocks were to its advantage in providing it with more security, but loan stock was not necessary to this, as is demonstrated by the deferred consideration.”

9.	Counsel for HM Revenue and Customs contends that the Special Commissioners were wrong in their approach to the construction of s.137 indicated in paragraph 3 of their decision.  He contends that as the protected transaction is an ‘exchange’ it is essential to examine the form of the exchange and the reasons for it.  Similarly, he submits, it would be necessary to examine the reasons for any reconstruction or amalgamation.  Otherwise, he suggests, this statutory condition has no effective scope because all such exchanges, reconstructions or amalgamations are likely to have been made for full consideration.
10.	Counsel for Mr Snell supports the decision of the Special Commissioners.  He emphasises that the subject matter of the statutory test is “the exchange” not ‘an exchange’.   He suggests that the use of the definite article indicates that it is the actual exchange which is relevant, not some other transaction whether or not by way of exchange which might have been used to implement the same commercial purpose.
11.	The point is a short one.  I agree with the conclusions of the Special Commissioners.  The purpose of s.137 is to limit the application of ss.135 and 136 so it is necessary to consider what those sections are intended to achieve.  Ss.127-131 provide that where a company’s share capital is reorganised shares received in place of those previously held should be treated as the same holding so that, as provided by s.127(1)
“a reorganisation shall not be treated as involving any disposal of the original shares or any acquisition of the new holding or any part of it, but the original shares (taken as a single asset) and the new holding (taken as a single asset) shall be treated as the same asset acquired as the original shares were acquired.”

Ss. 132 to 134 apply ss. 127 to 131, with modifications, to the conversion of securities.  There is no suggestion in any of these provisions that the reason for the reorganisation or conversion, as opposed to its genuine occurrence, is relevant to the enjoyment of the relief for which s.127 provides.
12.	Ss. 135 and 136 apply those provisions to exchanges of securities, whether involving a scheme of reconstruction or amalgamation or not, in which more than two persons are involved.  In such circumstances it is obviously necessary for the exchanges to be for commercial reasons if the new and the old holdings are to be treated as the same.   But if there is appropriate identity and value commensurate with bona fide commercial reasons I can see no reason why Parliament should have been concerned with whether the same result might have been achieved by some other legal form or means.  This is particularly so when the same sub-section introduces a non-avoidance test by reference to the scheme or arrangements as a whole.  In my judgment this conclusion is confirmed by the wording of the subsection.  The question is whether ‘the exchange in question is effected for bona fide commercial reasons’.   If the answer is in the affirmative it is irrelevant to consider the reasons why the parties chose to structure their transaction in that way.   For these reasons I dismiss the cross-appeal of HM Revenue and Customs.

Was the exchange part of a scheme or arrangements of which the main purpose, or one of the main purposes, was the avoidance of liability to capital gains tax?

13.	The statutory test, to which the heading of this section refers, involves the following issues of fact:
(1) was the exchange part of a scheme or arrangements and if so what were they?
(2) did the purposes of such scheme or arrangements include the purpose of avoiding a liability to capital gains tax and if so was it a main purpose?

I shall refer to the findings of fact of the Special Commissioners at some length but it is convenient to refer at the outset to the case for the Revenue as they understood it to be.  In paragraph 4 of their decision the Special Commissioners recorded that counsel for the Revenue:
“identifies the scheme or arrangements (to which we shall refer as 'the Arrangements') as the issue of each of the loan stocks with the purpose of becoming non-resident and redeeming them while non-resident.”

There is no suggestion that this submission was conceded by counsel for Mr Snell.  Accordingly the question of ‘purpose’ was relevant to both issues of fact, not only the second.   It is necessary to bear this in mind when considering some of the conclusions of the Special Commissioners to which I now turn.

14.	The Special Commissioners considered extensive documentary evidence.  In addition they heard oral evidence not only from Mr Snell, but also from his personal tax adviser as from February 1997 Mr Ian Mills, four representatives of Baker Tilly, namely Mr Sutton, Mr Snell’s corporate finance adviser, Mr Lowden, a tax partner, Mr Henry, a tax manager and Mr Allcock of the corporate finance department and Mr Murphy the manager of Coutts & Co, Manchester.  They received a witness statement of Mr Gorvin, Mr Snell’s solicitor.  In paragraph 11 the Special Commissioners recorded that

“The appellant's purpose is what was in his mind on 21 December 1996.  We cannot directly determine this and we must weigh up what he says was in his mind against contemporaneous documents.  We give such documents more weight than people's recollection as we are dealing with events more than nine years ago, and anyone's recollections of events of 1996 and 1997 must now be unreliable.  All of the witnesses, with the exception of Mr Sutton, quite reasonably, had difficulty in remembering the events in question, and we do not accept that Mr Sutton's definite recollections are correct.”

15.	The relevant findings of the Special Commissioners may be summarised in the following account.   Mr Snell took over the Company on the death of his father in 1972.  He looked after the overseas customers.  He spent considerable time abroad both in that connection and in relation to his other business interest of wreck salvage.  His long-term intention was to acquire an estate in Scotland and to that end he acquired a number of brochures of suitable estates then on the market in 1994, 1995 and 1996.  He realised as early as 1994 that he could not achieve this aim unless he sold his shares in the Company.  In that connection he was aware of the significance of loan notes for tax purposes.   He received offers for his shares in July 1994 and March and April 1995.     Mr Snell also received a letter dated 10th April 1995 from Mr Lowden containing this passage:
“now that...your future intentions have become clear, in that you intend eventually coming back to the UK to live on and operate a farming business...”  

The Special Commissioners rejected the evidence of Mr Snell that this did not represent his intention at the time.   They considered that it was likely that he had told Baker Tilly what the letter recorded.
16.	In September 1996 the corporate finance department of Baker Tilly produced an information memorandum for the benefit of prospective purchasers.   It sought offers for the whole of the issued share capital in the Company which
“...should be based on a cash consideration.  Offers on deferred consideration or instalments will be considered.  The preferred offer will be on the basis of a cash sum payable in full on completion...”

It contained this passage:
'[Mr Snell] would be happy to stay on to provide consultancy services to a prospective purchaser in the UK until 31 March and thereafter in developing and supporting markets abroad.  He would be available in the UK subject to residency restrictions'.

Mr Snell told the Special Commissioners that he had not read this part of the memorandum.   The Special Commissioners rejected his evidence.  They considered that he would have read it and would have changed it if it had been incorrect.  They took it as a statement of Mr Snell that he intended to become non-resident at the end of the tax year in April 1997.
17.	The memorandum elicited an offer on 3rd October 1996 of £7.5m in cash or loan notes, later increased to £7.75m and £7.8m.  In connection with that offer Mr Allcock wrote to the offeror’s agent on 15th October 1996 that:
“Our client will require bank guaranteed loan notes which will be realised after 6 April 

A further offer was made in October 1996 on behalf of the eventual purchasers of £7.75m in cash or bank guaranteed loan notes.   In that connection the solicitors for the purchasers recorded in an internal memorandum that:
'There is a concern that the vendor is to go off-shore for a period of at least two years for tax purposes.  Consideration is therefore being given as to a suitable amount to be held in an escrow account for the purposes of warranty claims.'

In his evidence Mr Snell said that he had never given this impression to the purchasers.  Mr Allcock gave evidence to the effect that the purchasers’ solicitors thought that Mr Snell was the sort of person who might live abroad.   This evidence was rejected by the Special Commissioners.  They thought that it was probable that Mr Snell did make such a statement to the prospective purchaser.
18.	On 18th December 1996 Mr Sutton wrote to Mr Snell:
“With completion now planned for Friday, and as promised in my original letter, you need to be aware of the potential traps for the unwary once you have gone abroad.”

Later he wrote:
“You are going abroad, and as a result, hoping to avoid the liability on the cashing of the loan notes.  Because of this the Revenue are going to try and catch you out if you do not follow the rules precisely.  What you must do is this:
1. do not cash any loan notes in the year in which you go abroad.”

The Special Commissioners accepted the evidence of Mr Snell that he had not asked for this letter.  They considered, contrary to the evidence of Mr Sutton, that it did demonstrate Mr Sutton’s understanding of the intention of Mr Snell at the time it was written.
19.	The Sale Agreement was concluded on 21st December 1996.   The Special Commissioners recorded that Mr Snell then went on holiday with his family and told his wife about the sale on Christmas Day.  They did not record the oral evidence of Mr Snell that he wrote on a Christmas card to his wife words to the effect that the sale would enable them to buy an estate in Scotland in the future.   On 6th January 1997 Mr Snell met the purchaser, Mr Wood.  The latter indicated that he would be making claims under the warranties contained in the Sale Agreement.  Such claims were indeed made and ultimately settled on 24th March 1998.  In consequence Mr Snell lost the deferred consideration of £537,000, the freehold reversion to the Company’s manufacturing premises and a further £450,000.  In the event he only received the ordinary loan stock of £5,630,000 duly redeemed on 8th July 1997.
20.	On 14th January 1997 Mr Snell went to Jersey with Mr Sutton.   The Special Commissioners concluded that this visit had been arranged as a follow up to Mr Sutton’s letter dated 18th December 1996.  They found that the probable purpose of the visit was to ascertain whether he could obtain residential status in Jersey and its tax planning effectiveness if he did.   In the event he was advised that he could not.  The Special Commissioners accepted evidence to the effect that Mr Snell informed Coutts & Co, Jersey that, in the light of that advice, he would be moving to the Isle of Man instead.
21.	On 22nd January 1997 Mr Snell discovered that he would be immediately liable for capital gains tax on that part of the gain realised in the sale of his shares in the Company as was referable to the deferred consideration.  He also became aware that he could only obtain ‘roll-over’ relief if he invested the whole of the proceeds of sale of his shares in the Scottish Estate.  Subsequently, on 10th February 1997 Mr Mills wrote a report for Mr Snell setting out his prospective capital gains tax liabilities and the possibilities of mitigating them.  In an 8 page section dealing with foreign residence Mr Mills stated:
“It should be noted that the Inland Revenue are likely to review any documentation carefully given that it was stated by Mr Burgess in September 1994, during the course of the Special Office enquiry, that Mr Snell intended to leave the country on the sale of the company to ensure the proceeds could be received tax free.”

Mr Snell told the Special Commissioners that this statement was not true but they found it likely that Mr Burgess did obtain such information from Mr Snell.   In addition they considered that the greater emphasis in the report on non-residence reflected Mr Mills’ understanding of what Mr Snell then intended.
22.	As I have already recorded, Mr Snell left England on 2nd April 1997.  The Revenue accept that since then he has not been resident or ordinarily resident in the United Kingdom.   In the light of the facts as I have summarised them the Special Commissioners then (paragraph 10) described their task as being “to determine [Mr Snell’s] purpose on 21st December 1996 when he entered into the contract for the exchange”.  They referred to that task being made more difficult by two additional factors, namely the acceptance by Mr Snell that by 19th February 1997 it was his purpose to become non-resident and the absence of any clear dividing line between the purpose of becoming non-resident and not doing so.   In paragraph 11 they stated that “[Mr Snell’s] purpose is what was in his mind on 21st December 1996”.   In paragraph 12 they recorded the submissions of counsel for Mr Snell that his purpose was to buy an estate in Scotland and that this only changed when and in the light of the changed attitude of the purchaser and his appreciation of the limits of ‘roll-over’ relief.  In paragraph 13 they set out at some length their reasons for concluding that Mr Snell “always had the purpose of becoming non-resident which became firmer over time”.  In paragraph 14 they gave their reasons for rejecting the submission that the purpose of Mr Snell changed when he discovered the limits on ‘roll-over’ relief.  In paragraph 15 they give their detailed reasons for concluding that the visit to Jersey “was to discuss residence in Jersey (as opposed to residence abroad generally)”. 
23.	The Special Commissioners concluded in paragraphs 15 and 16:
“...It is difficult to measure a purpose of becoming non-resident in terms of probability but we consider that from 1995 onwards he intended, at least on the balance of probabilities, to become non-resident for the purpose of redeeming loan stock on an eventual sale.  On 21 December 1996 there was still a possibility that he would not become non-resident, but the far greater probability that he would become non-resident dictated that he wanted loan stock in the expectation that it would be redeemed when he was non-resident.  He might possibly have initially envisaged becoming non-resident in 1998-99, rather than 1997-98, but becoming non-resident in the earlier year was required by the deteriorating relationship with the purchaser.
16.  Accordingly, on 21 December 1996 we find that he had the purpose of becoming non-resident before redeeming the loan notes and accordingly that one of his main purposes (indeed the only main purpose) of effecting the arrangements was avoidance of capital gains tax, and we dismiss the appeal.”

24.	These passages, and others, are criticised by Counsel for Mr Snell on the basis that the relevant issue is whether one of the main purposes of the scheme or arrangements was the avoidance of a liability to capital gains tax.   If on 21st December 1996 there was still a possibility that Mr Snell would not become non-resident then either the Special Commissioners misinterpreted the statutory requirement of a main purpose or their conclusion on that issue is perverse because, given the possibility that he might remain resident, no such main purpose could exist.
25.	The first of these alternatives was developed by references to passages in the Special Commissioners’ decision where they equated the taxpayer’s intention or what was in his mind with the purpose of the scheme or arrangements, see, for example, paragraphs 14 and 23 above.   Counsel pointed out that they were not necessarily the same and even if they were a main purpose was inconsistent with a continuing possibility of remaining resident in the United Kingdom.
26.	The second of these alternatives was developed by reference to passages in the decision which relate to findings on probability rather than of a specific fact, for example in paragraph 9(4) of the Decision.  Counsel for Mr Snell relied on paragraph 13 of the Decision, in particular the passage I have quoted in paragraph 23 above, as an example of a conclusion which on its face seems inconsistent with a finding as to a main purpose.   In addition Counsel for Mr Snell complained that the Special Commissioners had placed insufficient weight on the fact that the sales memorandum sought offers on the basis of a cash sum payable in full on completion (see paragraph 16 above).  He also complained that the Special Commissioners had failed to record the evidence of Mr Snell as to the message on the Christmas card to his wife on 25th December 1996 (see paragraph 19 above).  He submitted that the only proper conclusion open to the Special Commissioners was that it was not a main purpose of the scheme or arrangements that Mr Snell should become non-resident in order to avoid a liability to capital gains tax.
27.	These submissions are challenged by counsel for the Revenue.  He points out that there are the two issues of fact I have summarised in paragraph 13 above.  He observes that the purpose of Mr Snell is relevant to the identification of the elements of the scheme or arrangements.  Once the scheme or arrangements have been identified then it must be ascertained whether their main purpose is the avoidance of a liability to capital gains tax.  The purpose of Mr Snell may be relevant to the latter question if it is not self-evident from the nature of the scheme or arrangements themselves.  In neither case, so he submits, is it necessary that the purpose of Mr Snell should be final and unalterable.
28.	I prefer the submissions for the Revenue.  The ordinary meaning of the word ‘scheme’ is ‘a plan of action devised in order to attain some end’.  Similarly an arrangement is ‘a structure or combination of things for a purpose’, see for both meanings the Shorter Oxford English Dictionary.   Accordingly unless Mr Snell had the purpose of becoming non-resident as at 21st December 1996 so as to link the acceptance of loan notes on that day with their redemption when non-resident after 5th April 1997 there cannot be a relevant scheme or arrangement for the purpose of s.137.
29.	Although it could have been more clearly expressed, I understand the references to the purpose or intention of Mr Snell in paragraphs 9 to 15 of the Decision to be directed to the identification of the scheme as suggested by counsel for the Revenue, see paragraph 13 above.  No misdirection is involved and the evidence was more than sufficient to justify the inference that the Special Commissioners drew.   If that was the scheme or arrangements then it is obvious that a main purpose was, subject to a point of construction on which Mr Snell relies, the avoidance of a liability to capital gains tax for there could have been no other.  Accordingly it appears to me that though the method of expression used in paragraph 16 of the Decision is open to criticism the conclusions, subject to the further point I have mentioned, are not.  Thus I see no reason to remit the matter to the Special Commissioners for them to find further facts nor is it necessary for me to do so once it is appreciated that paragraph 16 of the decision contains the Special Commissioners’ conclusions on both the issues of fact to which I referred earlier.
30.	The point of construction to which I have referred arises from a dictum of Lord Nolan in IRC v Willoughby [1997] STC 995.   In that case the House of Lords was concerned with the proper application of s.741 of ICTA 1988 which disapplied certain anti-tax avoidance measures if the taxpayer established that, amongst other conditions, “the purpose of avoiding liability to taxation was not the purpose or one of the purposes for which the transfer...were effected.”  At pages 1003/4 Lord Nolan said:
“In order to understand the line thus drawn, submitted Mr. Henderson, it was essential to understand what was meant by "tax avoidance" for the purposes of section 741. Tax avoidance was to be distinguished from tax mitigation. The hallmark of tax avoidance is that the taxpayer reduces his liability to tax without incurring the economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such reduction in his tax liability. The hallmark of tax mitigation, on the other hand, is that the taxpayer takes advantage of a fiscally attractive option afforded to him by the tax legislation, and genuinely suffers the economic consequences that Parliament intended to be suffered by those taking advantage of the option. Where the taxpayer's chosen course is seen upon examination to involve tax avoidance (as opposed to tax mitigation), it follows that tax avoidance must be at least one of the taxpayer's purposes in adopting that course, whether or not the taxpayer has formed the subjective motive of avoiding tax.
My Lords, I am content for my part to adopt these propositions as a generally helpful approach to the elusive concept of "tax avoidance," the more so since they owe much to the speeches of Lord Templeman and Lord Goff of Chieveley in  Ensign Tankers (Leasing) Ltd. v. Stokes  [1992] 1 A.C. 655, 675C-676F, 681B-E.”

Later Lord Nolan added:
“In a broad colloquial sense tax avoidance might be said to have been one of the main purposes of those who took out such policies, because plainly freedom from tax was one of the main attractions. But it would be absurd in the context of section 741 to describe as tax avoidance the acceptance of an offer of freedom from tax which Parliament has deliberately made. Tax avoidance within the meaning of section 741 is a course of action designed to conflict with or defeat the evident intention of Parliament.”

31.	Counsel for Mr Snell submitted to the Special Commissioners that as liability to capital gains tax depends on residence or ordinary residence within the United Kingdom (s.2(1) TCGA 1992) and as there is no relevant impediment on a person leaving the United Kingdom as and when and for as long as he pleases, avoiding a liability to capital gains tax by becoming resident elsewhere could not be contrary to the intention of Parliament.  He pointed out, by way of contrast, that in the case of a body corporate the mere act of becoming non-resident constitutes a deemed disposal so as to give rise to chargeable gains, see s.185 TCGA.
32.	This submission was rejected by the Special Commissioners.  In paragraph 6 of their decision they said:
“We consider that [counsel for Mr Snell]'s analysis considers the absence of liability to tax of non-residents in the abstract and ignores that tax avoidance is part of a purpose test aimed at the circumstances of the particular exchange.  It is one thing for a person to enter into an exchange knowing that the consequence may be that as a result of a relief (on death, setting the gain against losses or annual exemptions, becoming non-resident or non-domiciled) no tax will ultimately be paid.  It is another for a person to enter into the exchange with the main purpose that no tax should be paid as a result of obtaining a particular relief in a later year.  It must be within the evident intention of Parliament that reliefs may result in no tax being paid in the future.  But it does not follow that it is within the evident intention of Parliament that one can enter into an exchange with the specific purpose of deferring tax so as to obtain a particular relief in a subsequent year.   We see nothing inconsistent with these two propositions.  In the year of the exchange the relief is not applicable and the exchange is effected solely with the purpose of deferring the charge to tax until the particular relief is available.  There is no reason why Parliament should intend this.  Accordingly we reject [counsel for Mr Snell]’s contention on the meaning of tax avoidance.  In principle, if one of the appellant's main purposes of effecting the arrangements is that capital gains tax should not be paid because the loan stocks will be redeem.”

33.	The argument of counsel for Mr Snell was repeated before me.  In addition reliance was placed on certain statements of the then Chief Secretary to the Treasury at the committee stage of the Finance Bill on 21st June 1977.  The statements in question related to the types of scheme at which the legislative predecessor of s.137 TCGA (s.40(2) Finance Act 1977) was aimed.   Counsel for the Revenue contended that the rule in Pepper v Hart [1993] AC 593 precluded reference to the passages in Hansard on which counsel for Mr Snell relied.  He submitted that there is no relevant ambiguity, the Chief Minister did not address the particular circumstances of cases such as this where liability is avoided by ceasing to be resident in the United Kingdom and the statement he did make was expressly not exhaustive.
34.	I accept the submissions of counsel for the Revenue relating to the passages in Hansard on which Mr Snell seeks to rely.   In my judgment they are not admissible for the reasons he gave.   In any event, I have, with the consent of both parties, looked at them.   In my judgment they would not be of any assistance in determining this issue even if they were admissible.
35.	Counsel for the Revenue did not dispute the relevance of the dictum of Lord Nolan in IRC v Willoughby [1997] STC 995.  He was content to submit that the relevant parliamentary intention is that to be found in s.135, namely that acceptance of loan notes is legitimate to defer liability to capital gains tax but not as part of a scheme to avoid it altogether.  Such a scheme, he submitted, comes within the express words of s.137.   Accordingly that section applies so as to withhold the right to deferral of liability which would otherwise be conferred by s.135.
36.	I have difficulty in understanding why the dictum of Lord Nolan in IRC v Willoughby [1997] STC 995, 1003 is relevant to the construction of that part of s.137(1) as requires one of the main purposes of the scheme or arrangements to have been the avoidance of liability to capital gains tax.   The passage on which counsel for Mr Snell relies deals with the difference between tax mitigation and tax avoidance.  No such distinction is drawn in s.137.  S.137 is concerned with the terms on which a liability to capital gains tax may be deferred.  It provides for a right of deferral to be lost if it is to be used for the purpose not of deferral but of avoidance altogether.  If that is a main purpose of the scheme or arrangements it matters not whether the scheme etc. was formed for purposes of tax mitigation, avoidance or indeed evasion.   The plain fact is, as the Special Commissioners recognised in the concluding sentence in paragraph 6 of their decision, that the main purpose of the scheme is the avoidance of a liability to capital gains tax.
37.	The essential point, as I see it, is that the word ‘liability’ in s.137(1) cannot be limited to an actual liability.   By definition such a liability cannot be avoided, only evaded.   Accordingly the liability to capital gains tax must include a contingent or prospective liability.  It may be that the context in which the phrase is used can limit its ambit in relation to prospective liabilities.  But in a context, such as this, where liability may be deferred on certain conditions I see no reason to restrict the ambit of the word ‘liability’ so as to exclude that which has been deferred.
38.	For all these reasons, in agreement with the Special Commissioners, I conclude that the exchange was part of a scheme or arrangements of which a main purpose was the avoidance of liability to capital gains tax.    

Conclusions

39.	For all these reasons I dismiss the appeal and the cross-appeal.