Conforming Interpretation of UK Exit-Charge Payment Provisions: Five-Instalment Deferral and the Limits of Tribunal Jurisdiction on Interest

Case: Trustees of the Panico Panayi Accumulation and Maintenance Settlements Nos. 1 to 4 v Revenue and Customs and Redevco Properties UK 1 Limited v Revenue and Customs
Citation: [2026] EWCA Civ 744 (Court of Appeal (Civil Division), 12 June 2026)
Panel: Lady Justice Asplin, Lady Justice Elisabeth Laing, Lord Justice Miles

1. Introduction

This joined Court of Appeal decision concerns historic “exit charge” transactions in which (i) trustees of UK trusts moved their centre of management to another EU Member State and (ii) a UK-incorporated company migrated its tax residence to another EU Member State. It was common ground that the UK statutory scheme as it then stood interfered with the Treaty freedom of establishment because it required immediate payment of tax assessed on deemed disposals when residence changed, without any statutory option to defer payment.

The central remedial question was not whether an exit charge could exist (it could), but how domestic law should be made EU-law-compliant: by conforming interpretation (reading domestic provisions compatibly with EU rights via the European Communities Act 1972 (“ECA”)) or by disapplication (setting aside incompatible domestic rules). A further issue—procedural but practically significant—was whether the tribunals had jurisdiction to determine or eliminate interest consequences.

Parties (role-based)

• The Trustees: trustees of four accumulation and maintenance settlements (the “Panayi” appeal).
• The Company: a UK company that migrated to the Netherlands (the “Redevco” appeal).
• HMRC: the Commissioners for His Majesty’s Revenue and Customs.

2. Summary of the Judgment

Result: both appeals were dismissed on the merits of conforming interpretation. Redevco succeeded only to the extent that the UT wrongly set aside/remade the F-tT decision due to a mistaken view that the F-tT had determined interest.

3. Legal and Statutory Framework

3.1 UK exit charge provisions (as they then applied)

• Trustees (Panayi): TCGA 1992 s 80 (deemed disposal/reacquisition when trustees cease UK residence) combined with TMA 1970 s 59B (timing of payment for self-assessed income tax/CGT).
• Company (Redevco): TCGA 1992 s 185 (deemed disposal on ceasing UK residence) and FA 1996 Sch 9 para 10A (loan relationship deemed assignment/reacquisition) combined with TMA 1970 s 59D (corporation tax due date).

3.2 EU law domestic effect and remedial tools

• ECA 1972 s 2(1) and s 2(4): required enforceable EU rights to be recognised and domestic enactments to be construed and have effect subject to those rights.
• The judgment draws analogies with Human Rights Act 1998 (“HRA”) s 3 interpretive technique, while noting ECA obligations could be “stronger” because EU-incompatible domestic law could be disapplied.

4. Analysis

4.1 Precedents Cited and Their Influence

(A) Foundations of conforming interpretation: implying words, “grain/thrust”, and limits

• Pickstone v Freemans Plc [1989] 1 AC 66 and Litster v Forth Dry Dock Company Limited [1990] 1 AC 546: foundational domestic authority for implying words into national provisions to fulfil EU obligations, even where the text appears unambiguous. The Court of Appeal used these to support a “muscular” interpretive approach under the ECA.
• Vodafone 2 v Revenue and Customs Commissioners [2009] EWCA Civ 446; [2010] Ch 77 (“V 2”): key authority that (i) the entire domestic scheme must be examined for conformity, (ii) conforming interpretation is “inevitably” retrospective, and (iii) adding an exception can be consistent with the legislation’s “grain”. V 2 was treated as validating the technique used here: inserting a limited EU-right-preserving qualification rather than dismantling the tax charge.
• British Gas Trading Limited v Lock [2016] EWCA Civ 983; [2017] ICR 1 (“Lock”): endorsed a UK approach to the “contra legem” boundary that focuses on whether the interpretation goes with the “grain/thrust” rather than being blocked by literal clarity. This was used to reject the argument that adding instalment language was impermissibly “contra legem”.
• Ghaidan v Godin-Mendoza [2004] UKHL 30; [2004] 2 AC 557 and Re S (Care Order: Implementation of Care Plan) [2002] UKHL 10; [2002] 2 AC 291: referenced (via V 2 and the UT’s reasoning) on the limits of interpretation and the “no judicial legislation” constraint. The Court of Appeal stressed that the interpretive duty can involve inserting words, but cannot become policy-making beyond what is necessary to achieve compatibility.

(B) Exit taxes and EU proportionality: what EU law requires

• Trustees of the P Panayi Accumulation and Maintenance Settlements v Revenue and Customs Commissioners (Case C-646/15) [2017] 4 WLR 210 (“Panayi CJ”): the decisive EU authority. It established (i) an entity such as a trust can rely on freedom of establishment, (ii) exit taxation can be justified by balanced allocation of taxing powers, but (iii) immediate recovery without any deferral option is disproportionate; a regime offering a choice between immediate payment and deferred payment (possibly with interest “if appropriate”) is less restrictive and proportionate.
• DMC v Beteiligungsgesellschaft mbH v Finanzamt Hamburg-Mitte (C-164/12) [2014] STC 1345 and Verder LabTec GmbH & Co KG v Finanzamt Hilden (C-657/13) [2015] 3 CMLR 39: cited to show that multi-year instalment payment schemes (five or ten years) can be compatible with EU law. They anchored the domestic choice of “five annual instalments” as a safe, orthodox compliance measure.

(C) Retrospectivity, legal certainty, and EU remedies: declaratory effect as the answer

• Revenue and Customs Commissioners v Applicants in the Post Prudential Closure Notice Applications Group Litigation [2025] EWCA Civ 166; [2025] 1 WLR 4463 (“Prudential”): treated as the complete answer to “legal certainty/legitimate expectation” objections. It emphasised that conforming interpretations declare what the law has always been, and EU principles (effectiveness, equivalence, legal certainty, effective judicial protection) do not require domestic procedures to be retrospectively reshaped to accommodate taxpayers’ earlier misunderstandings.
• Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners [2012] UKSC 19; [2012] 2 AC 337: quoted in Prudential (and relied on here) for the point that however “strained” a conforming interpretation may seem in hindsight, it is treated as declaratory of the law for the past.

(D) Disapplication as “minimal” and limited

• Fleming v HMRC [2008] UKHL 2; [2008] 1 WLR 195: cited for “minimal disapplication”—disapply only so far as necessary to remove the EU-right breach. The Court of Appeal distinguished it as not analogous to an accrued-right case and as not preventing the instalment interpretation here.
• Prudential Assurance Co Limited v HMRC [2013] EWHC 3249 (Ch); [2014] STC 1236: referenced for the proposition that minimal disapplication can sometimes converge with conforming interpretation. The Court of Appeal noted, but did not decide, whether a “temporary/abeyance” disapplication approach was correct.

(E) Later amendments and non-retrospectivity

• Revenue and Customs Commissioners v Ampleaward Ltd [2021] EWCA Civ 1459; [2021] STC 2260: relied on by the Trustees to argue that Parliament’s later choice not to legislate retrospectively should weigh against retrospective judicial construction. The Court of Appeal treated the relevant passage as obiter, and in any event rejected the argument: later legislation cannot logically alter the meaning/effect of earlier legislation; judicial decisions are inherently retrospective.

4.2 Legal Reasoning

(1) Identifying the “true” incompatibility

Redevco argued that the breach was the exit charge itself and that deferral is merely a matter of justification. The Court rejected this as incomplete. Drawing on Panayi CJ, it held that an exit charge can be justified only if paired with a proportionate deferral mechanism; therefore the domestic incompatibility is best located in the absence of deferral within the payment timing provisions (TMA ss 59B/59D), not in the deemed disposal charging provisions.

(2) “Possible” interpretation and the “grain/thrust” test

The Court held that reading ss 59B and 59D as including an instalment option in EU-rights cases:

• does not contradict the core purpose (“thrust”) of raising tax on deemed gains;
• is not textually “antagonistic” to the legislation;
• amounts to filling a gap (no deferral provision), rather than rewriting a coherent policy choice against deferral;
• is consistent with the ECA’s “coercive” interpretive command (s 2(1), s 2(4)).

The Court also treated “judicial legislation” objections as misplaced: the inserted words represented the minimum needed to comply with EU law as articulated in Luxembourg case law, without importing Parliament’s later, more elaborate regime.

(3) Retrospectivity, legitimate expectation, and legal certainty

Many taxpayer complaints were recast as objections to the declaratory theory rather than to the legality of the interpretation. Following Prudential and V 2, the Court held that retrospective effect is inherent: the courts’ role is to declare the meaning domestic law has always had when read subject to EU rights. Parliament’s later choice not to legislate retrospectively does not invalidate a retrospective judicial determination of what earlier law required.

(4) EU law did not require “deferral until realisation”

The Trustees argued that the compliant solution must defer payment until the asset is realised (sold), rather than imposing a five-year instalment schedule. The Court rejected this: there was no decision of the Court of Justice requiring realisation-triggered deferral, whereas Luxembourg authority positively endorsed instalment regimes as proportionate. The Court also noted that adopting a bespoke realisation regime would itself invite policy choices of the kind courts must avoid.

(5) Interest: jurisdiction and what the tribunals actually decided

The UT had set aside and remade the F-tT decisions on the basis that the F-tT had unlawfully dealt with interest. The Court of Appeal held:

• the F-tT indeed had no jurisdiction to decide interest;
• but properly read, the Panayi F-tT’s reference to interest was not part of the conforming interpretation—rather, an aside that interest was dealt with elsewhere in the statutory scheme; and the Redevco F-tT said nothing on interest;
• therefore, the UT had no jurisdiction to set aside and remake the determinations on that premise;
• Redevco (which appealed on this point) succeeded to the extent that the F-tT’s determination was restored; the Trustees did not pursue the same point, so the UT interpretation remained operative in Panayi.

4.3 Impact

• Exit-charge cases in the EU-law era: The judgment reinforces that the UK cure for disproportionate exit-tax payment rules can be achieved by a tightly scoped conforming interpretation: a five-instalment option beginning on the ordinary due date.
• Retrospective consequences are not, without more, unlawful: Taxpayers cannot generally convert uncertainty about developing EU law into a “legal certainty” bar to conforming interpretation. The Court’s reliance on Prudential signals that such arguments will face a high threshold.
• Interest remains a distinct procedural battleground: Although EU law may contemplate deferred payment “together with, if appropriate, interest”, this case clarifies that tribunal jurisdiction and the scope of the appealed decision matter: an appellate tribunal cannot remake determinations based on interest if interest was not actually determined within jurisdiction.
• Methodological guidance: The Court emphasised that later detailed statutory amendments do not define what earlier law “must have meant” under EU-conforming construction; courts supply only the minimal compatibility patch, not the later legislative architecture.

5. Complex Concepts Simplified

• Exit charge: a tax charge triggered when a taxpayer leaves a state’s taxing jurisdiction, often by deeming a disposal of assets at market value to capture latent gains.
• Freedom of establishment: an EU Treaty right protecting the ability to carry on economic activity through stable arrangements in another Member State; national measures that make relocation less attractive can restrict it.
• Proportionality (EU law): even if a restriction pursues a legitimate aim (e.g., balanced allocation of taxing powers), it must not go beyond what is necessary. Immediate payment without deferral was disproportionate.
• Conforming interpretation: reading domestic legislation “so far as possible” to comply with EU law, including implying words to cure a gap, provided it goes with the statute’s “grain/thrust”.
• Disapplication: setting aside incompatible domestic law to the extent necessary to give effect to EU rights where conforming interpretation is not possible.
• Declaratory theory: judicial decisions generally declare what the law has always been; a later conforming interpretation therefore applies to earlier periods, even if it was not foreseen at the time.
• Contra legem: an interpretive limit sometimes expressed as “not against the clear meaning”; UK courts apply this through the “grain/thrust” analysis rather than a strict literal barrier.

6. Conclusion

[2026] EWCA Civ 744 consolidates the remedial approach to EU-law-incompatible UK exit-charge payment rules: the incompatibility lay in the absence of a deferral option, and it was lawful (and “possible”) to cure that defect by reading the payment provisions as allowing five annual instalments in freedom-of-establishment cases. The Court treated legal certainty and legitimate expectation objections as largely consequences of the declaratory nature of adjudication rather than defects in the remedy.

The decision’s narrower procedural significance is its insistence on jurisdictional discipline: tribunals cannot determine interest where no statutory appeal lies, and appellate intervention on interest must track what was actually (and lawfully) decided below.