When a family sells a business, it is natural to structure the deal in a way that keeps the tax bill as low as possible. But at what point does HMRC consider that the planning has gone too far?
That was the central question in Olivia Wilkinson & Ors v HMRC [2023] UKFTT 695 (TC). It followed a £130 million sale of a private company, in which part of the sale structure was designed to enable the sellers’ daughters to benefit from Entrepreneurs’ Relief (now Business Asset Disposal Relief). HMRC challenged the arrangements, arguing that the tax planning amounted to avoidance and should be blocked.
The First Tier Tribunal ruled in favour of the family, finding that the tax planning was secondary to the commercial purpose of the sale.
The anti-avoidance rules that applied in this case have since been amended by the Autumn Budget 2025, and the framework for share exchanges is now different in several important respects. Understanding how the Tribunal reached its decision in Wilkinson is a useful starting point for understanding what those changes are designed to address.
Quick facts
The Background
Paragon Automotive Limited (P Ltd) was a private company providing logistics and vehicle processing services to the automotive sector. Robert Wilkinson was the lead entrepreneur behind the business from its founding in 2005. Together with his wife, Susan, he held around 58% of the shares. The remaining 42% was held by a separate group of minority shareholders.
In June 2016, an opportunity arose to sell the company to TF1 Ltd (the buying company), a subsidiary of the BCA Trading group, an established operator in the same sector. The deal moved quickly. Within about 4 weeks, the parties agreed to a sale for £130 million. That figure was significantly higher than the £100 million discussed in earlier negotiations that had fallen through.
The Tribunal accepted that this was a life-changing opportunity for the family to realise their investment in P Ltd, which supported the view that the real purpose of the deal was commercial rather than tax-driven.
The Transaction and the Tax Planning
The £130 million price was payable as:
Four days before completion, Mr and Mrs Wilkinson gifted shares to their three daughters. On completion, each daughter exchanged her shares for:
The daughters were also appointed as non-executive directors of a group subsidiary. The aim of structuring the daughters’ interests in this way was to help them qualify for Entrepreneurs’ Relief, which reduces the Capital Gains Tax (CGT) rate from 20% to 10% on qualifying business disposals.
One year and one day later, the daughters redeemed the loan notes, sold their shares back and resigned their directorships. They then claimed the relief on their tax returns.
From HMRC’s perspective, that sequence looked deliberately engineered. From the family’s perspective, it was planned and executed to meet the conditions of the relief.
Why the Share Exchange Rules Mattered
HMRC’s challenge was not framed as “you do not meet Entrepreneurs’ Relief.” Instead, it attacked the structure at an earlier stage, arguing that the daughters should not have benefited from a share exchange rule that deferred CGT. Two rules in the Taxation of Chargeable Gains Act 1992 (TCGA) were central to this.
Section 135, explained simply
Where shares in one company are exchanged for shares or loan notes in another, Section 135 can treat the exchange as triggering no immediate CGT. Instead of paying tax at the point of exchange, the gain is deferred into the new shares or securities. This is sometimes described informally as “rollover” treatment.
Section 137, the anti-avoidance rule
Section 137 can block the Section 135 treatment if the exchange is part of arrangements where a main purpose, or one of the main purposes, is avoiding CGT.
What HMRC Argued
HMRC argued that the daughters had been brought into the deal purely for tax purposes. The last-minute gift of shares, the special share classes and the directorship appointments were, in HMRC’s view, artificial steps unnecessary for the commercial sale. It was a case of creating a position that met relief conditions and then unwinding it once enough time had passed. HMRC argued Section 137 applied and issued discovery assessments accordingly.
What the Tribunal Decided
The Tribunal found that while the arrangements did involve tax avoidance, that avoidance was not a “main purpose.” The decision turned on several key findings.
1. The “Arrangements” Were the Whole Deal
HMRC wanted the Tribunal to focus narrowly on the steps involving the daughters. The Tribunal rejected this. Following earlier case law, including Euromoney Institutional Investor PLC v HMRC, it held that the relevant arrangements were the entire £130 million sale. The tax planning was part of the wider deal, not a standalone scheme, and had to be judged in that context.
2. Tax Mitigation or Avoidance?
The family argued they were simply using a relief that Parliament intended to be available, a concept often described as “tax mitigation.” The Tribunal disagreed. It found that the artificial features, such as the daughters’ directorships and the special share structure, went against the commercial grain of the deal and amounted to “tax avoidance.”
However, the Tribunal was clear that being labelled as avoidance does not automatically trigger Section 137. The provision applies only if the avoidance is a main purpose of the arrangements as a whole. Here, it was not.
3. Tax Avoidance Was Not a “Main Purpose”
The Tribunal concluded that CGT avoidance was not a main purpose of the deal, based on three principal factors:
4. Good Records Made the Difference
The Tribunal placed significant weight on contemporaneous documents, including initial deal emails, signed heads of terms and adviser correspondence. Following the approach in Gestmin v Credit Suisse, where courts prefer documentary evidence over oral recollection, it treated the written record as more reliable than witness memories given many years after the event.
HMRC asked the Tribunal to draw negative conclusions from the fact that the daughters did not give oral evidence. The Tribunal declined, noting that the daughters had no material role in the negotiations and had delegated decision-making to their father. His evidence, supported by the documentary record, was sufficient to establish the purpose of the arrangements for the family as a whole.
What This Means for Business Owners and Taxpayers
This decision illustrates the kinds of factors that can influence whether HMRC’s anti-avoidance arguments succeed. Tax planning within a commercial deal is not automatically a problem. The key question under the law as it stood was whether avoiding tax was a main purpose of the arrangements overall, not simply whether tax planning existed. The wider commercial context, the proportionality of the tax saving and the quality of the documentary record all played a significant role.
Business owners should also note the importance of keeping good records at the time of a transaction. Changes made close to completion will attract scrutiny, and the written record created at the time will carry far more weight than recollections years later.
The Rules Have Since Changed
The Autumn Budget 2025 introduced significant amendments to the anti-avoidance rules for share exchanges and company reconstructions, with effect from 26 November 2025. Several of the principles that were central to the outcome in Wilkinson are directly affected by these changes.
In particular, the scope of what constitutes the relevant “arrangements” has changed. HMRC is no longer required to show that avoidance was a main purpose of the overall transaction. The old “all or nothing” consequence, where rollover relief was lost for every shareholder if the provision was triggered, has been replaced by a power to make targeted, proportionate adjustments. The previous safe harbour for shareholders holding 5% or less has been removed. And the requirement for bona fide commercial reasons has been dropped entirely.
These are substantial changes that affect how share exchanges and reorganisations should be approached going forward.
For a full explanation of the new rules and their practical implications, see our separate article:
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