Judgment summary
This decision of the First-tier Tribunal (Tax Chamber) concerns Baillie Gifford China Growth Trust PLC (BGCG), formerly Witan Pacific Investment Trust PLC, and HMRC. It addresses two issues: whether a letter from HMRC dated 20 May 2025 amounted to a closure notice, and the scope of s 806(2) Income and Corporation Taxes Act 1988 (ICTA) in relation to claims for the carry forward of "blocked" double tax relief (DTR) (para 1-4, 19).
The appeals were heard on 16 and 17 June 2026 together with related matters remitted by the Court of Appeal in HMRC v Applicants in the Post Prudential Closure Notice Applications Group Litigation [2025] 1 WLR 4463 (PPCN CA), with a separate decision released on that matter at the same time (para 3).
The Tribunal found that HMRC's letter of 20 May 2025 was a closure notice, and that BGCG was entitled to carry forward DTR credit for the entirety of the dividend income previously returned as exempt, rejecting HMRC's narrower construction of s 806(2) ICTA (para 26, 37-38).
Background
BGCG received dividend income from non-resident investments in holdings below 10% ("portfolio dividends") during its accounting periods ending 31 January 2008 (APE 2008) and 31 January 2009 (APE 2009). It filed its corporation tax returns treating all of this non-resident dividend income as exempt, but its management expenses in those periods were insufficient to cover the entirety of the overseas income received (para 6).
HMRC gave notice of intention to enquire into the returns on 20 October 2009 (para 7). In June 2011, before any closure notices were issued, BGCG made protective claims for withholding tax (WHT) relief, and later, on 28 May 2020 and 23 November 2022, made further claims for DTR at the foreign nominal rate (FNR) in respect of all the dividend income returned as exempt (para 8).
On 14 April 2023, HMRC issued closure notices for both periods, bringing the dividend income into charge under Schedule D Case V, adjusting management expenses utilised, reducing excess management expenses carried forward to nil, and allowing DTR consisting wholly of WHT credit relief. The total tax due was amended to £443,780.90 for APE 2008 and £670,902.91 for APE 2009, both previously nil (para 9).
On 18 April 2023, BGCG appealed against the closure notices and claimed DTR at the FNR under s 806(2) ICTA in respect of the entirety of the dividend income (the "806(2) Claims") (para 10). HMRC opened enquiries into these claims on 17 July 2023 under paragraph 5, Schedule 1A TMA 1970 (para 11-13).
On 20 May 2025, HMRC wrote to BGCG stating that, on a revised understanding of the commencement of the six-year period under s 806(2), the 806(2) Claims were invalid as premature (para 14). BGCG then appealed that decision (TC/2025/04079) and, in the alternative, applied for a direction that HMRC issue closure notices (TC/2025/04138) (para 15).
On 1 May 2026, having abandoned the prematurity argument, HMRC issued closure notices reducing the 806(2) Claims to £439,017.53 for APE 2008 and £656,316.42 for APE 2009, on the basis that the claims were "excessive". BGCG appealed against those closure notices under reference TC/2026/02258, which is proceeding separately (para 16-17).
Core dispute
Two substantive issues arose. The first was whether HMRC's letter of 20 May 2025 constituted a closure notice rejecting BGCG's 806(2) Claims, or was merely a letter communicating HMRC's position, as HMRC contended by reference to HMRC v Raftopoulou [2018] EWCA Civ 818 (para 19-21).
The second issue concerned the scope of s 806(2) ICTA and its application to claims for carry forward of "blocked" DTR. BGCG argued it was entitled to DTR credit for the entirety of the dividend income returned as exempt, and that since this exceeded the tax due in APE 2008 and APE 2009, the excess should be carried forward. HMRC argued that any claim arising from the s 806(2) adjustment was limited to the amount of tax payable after management expenses had been applied (para 27, 31).
Court findings
On the first issue, the Tribunal distinguished Raftopoulou on the basis that, unlike in that case, HMRC had clearly opened enquiries into the 806(2) Claims by letter of 17 July 2023 and accompanying notices of enquiry. Although the 20 May 2025 letter did not explicitly state that HMRC's enquiries were complete, it clearly stated HMRC's conclusion that the 806(2) Claims were invalid, thereby bringing the enquiry to an end. The Tribunal held that a reasonable person in BGCG's position would understand this as a closure notice (para 25-26).
On the second issue, the Tribunal considered the Court of Appeal's analysis in PPCN CA, particularly at paragraphs 218 to 230, concerning the application of s 806(2) where management expenses cause a reallocation of DTR credit between years. The Tribunal noted that it had "not found this straightforward", echoing Falk LJ's own observation in PPCN CA (para 29-36).
The Tribunal agreed with BGCG's counsel that the 806(2) Claims must extend to the full amount of DTR to which BGCG was entitled in respect of the dividends previously returned as exempt. It held that HMRC's approach, limiting DTR to income not covered by management expenses, relied on too narrow a construction of s 806(2) ICTA, and failed to recognise that PPCN CA at [222] addressed a different question from the one in this case, namely whether DTR could be claimed in the relevant year and carried forward. The Tribunal also found that Issue 7 in PPCN CA concerned a different factual scenario, since BGCG had returned all its non-resident dividend income as exempt, unlike the taxpayers in PPCN CA (para 37-39).
Outcome
The Tribunal concluded that HMRC's letter of 20 May 2025 to BGCG is a closure notice, and that BGCG may carry forward the blocked DTR under s 806(2) ICTA (para 41).
The parties were directed to liaise and use best endeavours to resolve the issues in the appeals in accordance with these conclusions, possibly in conjunction with the separate appeal (TC/2026/02258) against the closure notices issued on 9 June 2026. If resolution was not possible, either party could apply to the Tribunal within 60 days of release of the decision, including case management proposals (para 41-42).
The decision records a right to apply for permission to appeal under Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, within 56 days of the decision being sent (para 43).
Major issues / areas of contention
- Whether HMRC's letter of 20 May 2025, rejecting BGCG's 806(2) Claims as invalid, constituted a closure notice under Schedule 1A TMA 1970.
- Application of the test from HMRC v Raftopoulou [2018] EWCA Civ 818 for determining whether a communication from HMRC is a closure notice.
- The scope and application of s 806(2) ICTA 1988 in relation to claims for carry forward of DTR credit 'blocked' by management expenses.
- Whether DTR credit under s 806(2) ICTA is limited to income not covered by management expenses, or extends to the full amount of dividend income previously returned as exempt.
- The relevance and distinguishing of the Court of Appeal's analysis in PPCN CA (issues 7, 10 and 11) to BGCG's circumstances.