The really interesting issues as to quantum, however, arise in respect of the prior transaction with Carbon.

Any transaction with Carbon, which would be a return of value if made with Mr Glucose will be a return of value in accordance with TCGA 1992, Sch 5B para (10) (b) and para 19. The payment by a company of remuneration for services as an employee which is not such remuneration as may be reasonable in relation to the duties of that employment is a return of value (see TCGA 1992 Sch 5B Para 13 (2) (i) and (7) (a)).

It is a question of fact whether the payment made to Carbon was reasonable in relation to his duties and that is not a question on which a person expert as a tax adviser could give expert evidence. Nonetheless, it is an issue which BJS’s litigating solicitors should investigate.

Assuming that the remuneration was not reasonable in relation to Carbon’s duties there would have been a return of value, as a result the shares would have ceased to be eligible shares and there would have been a chargeable event under which all of the gains held over by Mr Glucose would have been brought into charge.

The result of that is that although the property transaction was a chargeable event, no gains would have accrued to Mr Glucose by reason of it. So arguably the capital gains tax charge should not form part of the quantum of his claim.

Also, rather strangely, in this case BJS would be in a better position if Mr Brown had been aware of the transaction with Carbon at the time he advised Mr Glucose than if he had not. In that case, his proper advice to Mr Glucose (subject to para 13B which we discuss below) would have been that although the property transaction was a chargeable event it would not lead to a capital gains tax charge because that charge had already accrued.

As we have seen, Mr Glucose was willing to proceed with the transaction even though he had been warned about the income tax charge so he would not have then been in any better position had he been properly advised because he would, presumably, have proceeded with the transaction in any event.

If, however, Mr Brown was not aware of the transaction with Carbon at the time he advised on the property transaction, a reasonably competent adviser would have advised Mr Glucose of the risk that the property transaction would trigger a clawback of the EIS relief with the result that, if MR Glucose, on the basis of that advice, would not have proceeded with the transaction, the income tax charge would be damage which he would have suffered from relying on the incorrect advice from Mr Brown.


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