Tax QC Bretten loses £190k tax case at FTT

A top tax barrister who designed his own tax avoidance scheme and defended it in court against HMRC has lost his attempt to avoid paying £190,000 in tax in a case which dates from 2003.

Rex Bretten QC, now retired from Tax Chambers, designed a complex scheme which involved setting up trusts and investing £500,000 in discounted securities. He claimed his scheme created a loss of £475,000 which he could set against his income. HMRC rejected the tax issue and closed the scheme down back in 2003, stating that the tax was due.

As a result, Bretten took the case to the First Tier Tribunal (FTT).

The case, George Rex Bretten QC v Commissioners for HMRC ([2013] UKFTT 189 (TC)) , was heard at the FTT and Bretten represented himself.

The FTT said that the securities had been issued solely to facilitate Bretten’s tax avoidance scheme and that there was no genuine loss, so the tax is payable.

Bretten lost the case as the FTT rejected his arguments based on the Mayes, Astell and Campbell cases, amongst others.

The tribunal judge, Barbara Mosedale, said: ‘Once the 14 days had passed, I find there was no real likelihood that the transactions would not proceed and in particular no real likelihood that the gift to Trust 2 by Mr Bretten would not take place.

'This was because the entire objective of using RDS was tax avoidance, and once the scheme was put in motion there was no real likelihood Bretten would not see it through to the end.

'While he might have got cold feet, this was only remote possibility and in any event he would have done what he did, which was to complete the series of transactions and then consider whether or not he wanted to claim the relief in his tax return.’

'Viewed realistically, there was no chance whatsoever that (unless the scheme was collapsed by early redemption) the substitution option would not be exercised.’

Refuting the loss argument, the tribunal added: ‘There was never any chance that OCL would be left holding the £500,000 and Bretten left with notes worth a mere £25,000. Although the structure was unique, the principles ruled on by the tribunal could be directly applied to a number of other cases involving further tax of around £2m.’

Jim Harra, HMRC director general for business tax, said: ‘This is another important success for HMRC at tribunal which may well have repercussions for other similar tax avoidance schemes.

‘Some people make the mistake of thinking that a complex avoidance scheme backed by a senior lawyer is safe from HMRC’s challenge. That would be a big mistake, as this outcome proves. People should always ask themselves whether a proposed scheme is too good to be true.’

Published 12 April 2021