O'Brien v Benson's Hosiery (Holdings) Ltd [1980] AC 562 (HL)

Facts

  • O’Brien v Benson’s Hosiery (Holdings) Ltd [1980] AC 562 (HL) is a key House of Lords decision concerning the application of Capital Gains Tax (CGT) to corporate disposals.
  • The case involved the disposal of shares by a company and addressed the correct identification of the taxpayer responsible for CGT on gains realized from such disposals.
  • The court examined the circumstances under which a company is considered to have made a disposal of an asset within the meaning of CGT legislation.
  • Issues relating to the valuation of shares at the time of disposal, particularly regarding unlisted shares or those with limited marketability, were considered.

Issues

  1. Whether, under CGT legislation, the company or its shareholders are liable for CGT arising from the disposal of company assets.
  2. How "disposal" should be defined and interpreted in the context of CGT, specifically regarding share transfers achieved through complex arrangements.
  3. The appropriate method to determine the market value of shares for the purpose of calculating chargeable gains on disposal.
  4. The implications of these findings for structuring corporate transactions and tax planning.

Decision

  • The House of Lords confirmed that it is the company—not its shareholders—that is responsible for CGT on gains from disposals, due to the company's separate legal identity.
  • The definition of "disposal" for CGT purposes was held to be broad, covering share transfers and complex restructuring arrangements that amount to a disposal resulting in chargeable gains.
  • The court emphasized that the market value of the shares at the time of disposal must be determined for CGT calculations, noting particular challenges where shares are not listed or are illiquid.
  • The judgment highlighted the need for careful consideration of CGT consequences in corporate restructurings, share buybacks, mergers, demergers, and related transactions.

Legal Principles

  • A company is the chargeable person in respect of CGT on gains from asset disposals, not its shareholders, reaffirming the company's separate legal identity.
  • "Disposal" within CGT legislation is interpreted broadly to include various forms of share transfers and contractual arrangements that result in asset transfers.
  • Determining the market value at the time of disposal is essential for calculating the chargeable gain, even where shares are difficult to value.
  • The court’s interpretation serves as guidance for tax professionals in structuring corporate transactions and complying with CGT legislation.

Conclusion

O’Brien v Benson’s Hosiery (Holdings) Ltd [1980] AC 562 (HL) clarified that companies, not shareholders, are liable for CGT on asset disposals and established a wide interpretation of "disposal." The case remains significant for tax planning and the structuring of corporate transactions involving the transfer of shares, providing enduring guidance on the application of CGT legislation to corporate disposals.

The answers, solutions, explanations, and written content provided on this page represent PastPaperHero's interpretation of academic material and potential responses to given questions. These are not guaranteed to be the only correct or definitive answers or explanations. Alternative valid responses, interpretations, or approaches may exist. If you believe any content is incorrect, outdated, or could be improved, please get in touch with us and we will review and make necessary amendments if we deem it appropriate. As per our terms and conditions, PastPaperHero shall not be held liable or responsible for any consequences arising. This includes, but is not limited to, incorrect answers in assignments, exams, or any form of testing administered by educational institutions or examination boards, as well as any misunderstandings or misapplications of concepts explained in our written content. Users are responsible for verifying that the methods, procedures, and explanations presented align with those taught in their respective educational settings and with current academic standards. While we strive to provide high-quality, accurate, and up-to-date content, PastPaperHero does not guarantee the completeness or accuracy of our written explanations, nor any specific outcomes in academic understanding or testing, whether formal or informal.
No resources available.

Job & Test Prep on a Budget

Compare PastPaperHero's subscription offering to the wider market

PastPaperHero
Monthly Plan
$10
Assessment Day
One-time Fee
$20-39
Job Test Prep
One-time Fee
$90-350

Note the above prices are approximate and based on prices listed on the respective websites as of May 2025. Prices may vary based on location, currency exchange rates, and other factors.

Get unlimited access to thousands of practice questions, flashcards, and detailed explanations. Save over 90% compared to one-time courses while maintaining the flexibility to learn at your own pace.

All-in-one Learning Platform

Everything you need to master your assessments and job tests in one place

  • Comprehensive Content

    Access thousands of fully explained questions and cases across multiple subjects

  • Visual Learning

    Understand complex concepts with intuitive diagrams and flowcharts

  • Focused Practice

    Prepare for assessments with targeted practice materials and expert guidance

  • Personalized Learning

    Track your progress and focus on areas where you need improvement

  • Affordable Access

    Get quality educational resources at a fraction of traditional costs

Tell Us What You Think

Help us improve our resources by sharing your experience

Pleased to share that I have successfully passed the SQE1 exam on 1st attempt. With SQE2 exempted, I’m now one step closer to getting enrolled as a Solicitor of England and Wales! Would like to thank my seniors, colleagues, mentors and friends for all the support during this grueling journey. This is one of the most difficult bar exams in the world to undertake, especially alongside a full time job! So happy to help out any aspirant who may be reading this message! I had prepared from the University of Law SQE Manuals and the AI powered MCQ bank from PastPaperHero.

Saptarshi Chatterjee

Saptarshi Chatterjee

Senior Associate at Trilegal