Thomas v Revenue and Customs (Taxation of shareholder on assignment of debt - whether deliberate - whether there has been a discovery...) [2026] UKFTT 627 (TC) (24 April 2026)

Thomas v Revenue and Customs (Taxation of shareholder on assignment of debt - whether deliberate - whether there has been a discovery...) [2026] UKFTT 627 (TC) (24 April 2026)

The Tribunal found that the assignment of the NRL Loan by TML to the Appellant constituted a distribution taxable as dividend income to the extent the value of the assigned debt (£2,135,713) exceeded the Appellant's loan account (£1,480,684.93), resulting in taxable income of £655,028.07. The Appellant failed to prove her loan account was higher. There was no binding section 54 agreement, HMRC made a valid discovery, and the Appellant's failure to declare was deliberate. The penalty was upheld but reduced in line with the revised tax calculation. No breach of Article 6 ECHR was found.

Citation
[2026] UKFTT 627 (TC)
Parties
Appellant: Sarah Thomas; Respondents: The Commissioners for His Majesty's Revenue and Customs
Jurisdiction
United Kingdom
Judgment Date
24 April 2026
Procedural Posture
Tax Appeal / First Tier Tribunal (tax Chamber) Final Judgment
Outcome
Appeal dismissed in principle; assessments and penalties varied to reflect correct calculations.
Legal Topics
Taxation of Shareholder on Assignment of Debt, Income Tax on Distributions, Discovery Assessment, Penalties for Deliberate Behaviour, Section 54 Taxes Management Act Agreements, Article 6 ECHR in Tax Penalties
Tax Law Taxation of Shareholder on Assignment of Debt Income Tax on Distributions Discovery Assessment Penalties for Deliberate Behaviour Section 54 Taxes Management Act Agreements Article 6 ECHR in Tax Penalties

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Parties

Sarah Thomas

Appellant

The Commissioners for His Majesty's Revenue and Customs

Respondents

Procedural Posture

Tax Appeal / First Tier Tribunal (tax Chamber) Final Judgment

Legal Issues

  1. 1 Whether the assignment of a company debt to a shareholder is taxable as dividend income
  2. 2 Whether there was a prior agreement under section 54 Taxes Management Act 1970
  3. 3 Whether HMRC made a valid discovery entitling them to issue an assessment

Ratio Decidendi

The Tribunal found that the assignment of the NRL Loan by TML to the Appellant constituted a distribution taxable as dividend income to the extent the value of the assigned debt (£2,135,713) exceeded the Appellant's loan account (£1,480,684.93), resulting in taxable income of £655,028.07. The Appellant failed to prove her loan account was higher. There was no binding section 54 agreement, HMRC made a valid discovery, and the Appellant's failure to declare was deliberate. The penalty was upheld but reduced in line with the revised tax calculation. No breach of Article 6 ECHR was found.

Court Disposition

Appeal dismissed in principle; assessments and penalties varied to reflect correct calculations.

Orders

  • The Appellant is liable to income tax on a distribution of £655,028.07 for the 2009-10 tax year.
  • The tax due is to be recalculated in accordance with dividend rates, resulting in tax of £263,081.25.