The Supreme Court has ruled that a £250,000 payment received by Thomas Keleghan in connection with a 1990 share sale was taxable as employment-related income, while rejecting Revenue’s separate attempt to impose capital gains tax when associated loan notes were redeemed.
Keleghan was one of five shareholders in Gladebrook Limited. In February 1990, the shareholders agreed to sell Gladebrook’s entire issued share capital to Suicre Eireann for £8.68 million. Keleghan’s share of the consideration was £1,867,068, paid through loan notes rather than cash.
On the same day, Keleghan entered a service agreement with Suicre Eireann. A separate letter stated that £250,000 of his purchase consideration was paid as an inducement to enter that agreement and could become repayable if he failed to comply with it.
The Appeal Commissioners later found that Keleghan never formally became an employee of Suicre Eireann. He remained sales director of Sugar Distributors Limited until retiring in June 1991.
The High Court had ruled in Keleghan’s favour on both the income-tax and capital-gains issues. Revenue appealed.
Mr Justice Francis D Murphy held that the £250,000 was nonetheless a taxable emolument. The court inferred that Suicre Eireann accepted Keleghan’s continued service with its subsidiary as compliance with the service agreement. However, an unresolved issue over the correct tax year had to be returned to the High Court.
Revenue did not succeed on the capital gains tax issue. Keleghan’s loan notes were redeemed for cash in February 1993. The Supreme Court held that this was a disposal of the loan notes themselves, not a revived disposal of his former Gladebrook shares.
It further held that the notes were not a “debt on a security” for capital gains tax purposes. They could not be assigned, carried only a floating interest rate and had limited conversion rights. Those features did not give them sufficient commercial potential to appreciate in value.
Revenue’s appeal therefore succeeded on the £250,000 income-tax point but failed on the capital-gains issue.