The appellant was one of a number of participants in a tax avoidance scheme marketed by Premier Strategies Limited (PSL) and known as ‘Excalibur’. The scheme was designed to create a capital loss under TCGA 1992, s. 106A in respect of which income tax relief could be claimed under ICTA 1988, s. 574. The scheme comprised the following transactions:

• The appellant subscribed for 20 £1 shares at par in an Isle of Man trading company (Broadgate Trading Limited (Broadgate)), which was established for the purposes of the scheme. The appellant then sold the shares for the same amount to an unconnected company, Braye, and granted Braye an option to sell the shares back within 30 days at fair value plus 9.1%.
• Braye then borrowed and subscribed for one share in Broadgate at a substantial premium, then exercised its option and sold the shares back to the appellant for £1.1m.(This disposal and re-acquisition created the capital loss by matching the disposal for circa £20 with the shares re-purchased for £1.1m under the 'next 30 day' (bed and breakfasting) rule in TCGA 1992, s. 106A(5)).
• The appellant borrowed to fund the re-purchase and Braye used the monies received to repay its borrowings (ie, the funds it had borrowed to finance the premium share subscription).
• With the proceeds (from Braye) from the issue of the one share at a significant premium, Broadgate capitalised a BVI company and the BVI company then made a loan back to the appellant which monies the appellant in turn used to repay his borrowings (borrowed to fund the share re-purchase above).
• This left a debt owed by the appellant to the BVI company, which was then written off and the appellant donated the shares in Broadgate to charity (which disposal was a no gain, no loss disposal).

HMRC challenged the efficacy of the scheme on five grounds: