Judgment summary
This decision follows the Court of Appeal's remittal, in HMRC v The Applicants in the Post Prudential Closure Notice Applications Group Litigation [2025] 1 WLR 4463, of eight test cases to the First-tier Tribunal for detailed decisions in accordance with the Court of Appeal's conclusions (paras 1 to 2).
The test cases had been selected from 129 closure notice applications and 177 appeals, all others being stayed, to resolve issues concerning tax on dividend income relating almost exclusively to portfolio holdings (under 10%) by investment funds (para 4).
The Tribunal, Judge Brooks, addressed each of the eight test cases in turn, determining closure notice applications, appeals, and in Test Case 7 (Fidelity) two outstanding issues regarding the scope of a claim letter and the automatic carry forward of double taxation relief (DTR) credits, with detailed calculations set out in an Appendix.
Background
The Court of Appeal's order of 25 February 2025 remitted the individual appeals and closure notice applications of the Taxpayers, previously determined as eight test cases by the FTT, for the FTT to make the decisions required in accordance with the Court of Appeal's conclusions (paras 1 to 2).
The eight Test Cases comprised three closure notice applications (Schroder Asian Income Fund, Avon Insurance plc, and Baillie Gifford American Fund) and five appeals (SLMM European Equity Fund, Schroder European Fund, Schroder Institutional Growth Fund, Fidelity UK Index Fund, and Henderson Emerging Markets Fund) (para 3).
The background facts for each Test Case had been agreed by the parties and recorded in the earlier FTT Decision ([2021] UKFTT 459 (TC)) at paragraph 90, and were not set aside by either the Upper Tribunal Decision ([2024] UKUT 23 (TCC)) or the Court of Appeal Decision (para 8).
Core dispute
The principal dispute concerned the detailed application of the Court of Appeal's conclusions to each of the eight individual test cases, including whether closure notice applications should be refused and whether appeals should be dismissed or allowed.
In Test Case 7 (Fidelity), two specific issues required resolution: first, the scope of a protective claim made by Fidelity's representatives, Ernst & Young, in a letter dated 31 March 2010, and whether it extended to credit relief for both EU/EEA and non-EU/EEA sourced dividend income; and second, whether DTR credits claimed in Year 1 but unused due to management expenses carry forward automatically to later years, or whether a further claim is required (paras 19, 27).
In Test Case 6 (Schroder Institutional Growth) and Test Case 8 (Henderson), further disputes arose concerning the quantum of DTR credit following closure notices issued on 21 April 2026 into re-made section 806(2) claims, and protective appeals referred to the Tribunal on 9 June 2026 (paras 17, 40).
Court findings
The Tribunal refused the closure notice applications of Schroder Asian (Test Case 1), Avon (Test Case 2) and Baillie Gifford (Test Case 3) (paras 9, 10, 11). It was unnecessary to determine the status of a further letter of 26 March 2010 in Baillie Gifford's case, as a valid claim had already been made in its returns (paras 12, 13).
The appeals of SLMM (Test Case 4) and Schroder European (Test Case 5) were dismissed and their closure notice applications refused (paras 14, 15). The appeal of Schroder Institutional Growth (Test Case 6) was dismissed, with the parties agreeing a DTR credit at the FNR of £2,463 for the APE 30 June 2004 (paras 16, 17).
In Test Case 7 (Fidelity), the Tribunal accepted that the 31 March 2010 letter was a valid claim for credit at the Foreign Nominal Rate (FNR) for both EU/EEA and non-EU/EEA sourced dividend income, since the term "dividend income" was defined in the agreed facts to include non-EU/EEA dividends, and HMRC could not resile from those agreed facts (paras 23, 24, 26). The Tribunal further held, applying Falk LJ's observations in the Court of Appeal Decision at [201], that DTR claimed and unused in Year 1 due to management expenses carries forward automatically for set off against future tax liabilities, without the need for a further claim (paras 30, 31). The Tribunal accepted Fidelity's calculations, preferring them to HMRC's due to identified errors in HMRC's figures, and confirmed corporation tax repayable as set out in the Appendix (paras 36 to 38).
In Test Case 8 (Henderson), the appeal was allowed in part: for the APE 31 October 2006, the closure notice was amended to allow WHT credit for portfolio dividends of £28,694; for the APE 2007, the appeal was dismissed and the closure notice stood (para 39). The parties agreed DTR credit at the FNR of £36,233.84 for APE 2006 and £20,195.14 for APE 2007 (para 40).
Outcome
The Tribunal determined each of the eight test cases in accordance with the Court of Appeal's conclusions: closure notice applications for Schroder Asian, Avon and Baillie Gifford were refused; the appeals of SLMM, Schroder European and Schroder Institutional Growth were dismissed; the Fidelity appeal resulted in corporation tax being repayable in the amounts set out in the Appendix; and the Henderson appeal was allowed in part, with WHT credit of £28,694 allowed for APE 2006 and the APE 2007 closure notice upheld.
Agreed DTR credit figures were recorded for Schroder Institutional Growth (£2,463) and Henderson (£36,233.84 for APE 2006 and £20,195.14 for APE 2007).
The appeal of Baillie Gifford China Growth Trust PLC, heard together with the Test Cases though not part of the group litigation, was determined in a separate decision released at the same time (para 41). Any party dissatisfied has the right to apply for permission to appeal within 56 days under Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (para 42).
Major issues / areas of contention
- Whether the FTT needed to restate the facts and outcome of the Test Cases given the UT and Court of Appeal decisions (paras 6 to 8)
- Whether closure notice applications by Schroder Asian, Avon and Baillie Gifford should be refused (paras 9 to 11)
- Whether a letter of 26 March 2010 relating to Baillie Gifford's double taxation relief claim needed separate determination (paras 12 to 13)
- Whether the appeals of SLMM and Schroder European should be dismissed and their closure notice applications refused (paras 14 to 15)
- The quantum of DTR credit at the FNR agreed for Schroder Institutional Growth following a re-made section 806(2) claim (paras 16 to 17)
- Whether a protective claim letter of 31 March 2010 by Fidelity's representatives covered credit relief for both EU/EEA and non-EU/EEA sourced dividend income (paras 19 to 26)
- Whether DTR claimed but unused in Year 1 due to management expenses carries forward automatically without a further claim (paras 27 to 31)
- The correct methodology and figures for calculating corporation tax repayable to Fidelity, including identified errors in HMRC's calculations (paras 32 to 38)
- Whether the Henderson appeal should be allowed in respect of WHT credit for portfolio dividends for APE 2006 and dismissed for APE 2007 (para 39)
- The agreed quantum of DTR credit at the FNR for Henderson following re-made section 806(2) claims (para 40)