TIMOTHY WATTS v Revenue & Customs (TAX AVOIDANCE - INCOME TAX - loss determination on disposal of gilt strips) [2022] UKFTT 408 (TC) (07 November 2022)

TIMOTHY WATTS v Revenue & Customs (TAX AVOIDANCE - INCOME TAX - loss determination on disposal of gilt strips) [2022] UKFTT 408 (TC) (07 November 2022)

The Tribunal found that the arrangements were not a sham and the legal steps taken were effective. However, the calculation of loss under para 14A must be interpreted in light of the statutory purpose and the Ramsay principle. The amount paid by the third-party purchaser to the trustee is not an 'amount payable on the transfer' to the appellant, and thus cannot be excluded from the loss calculation. The appellant is entitled to some loss relief, but the quantum must be reduced to reflect the actual economic loss sustained. The appeal is allowed in part.

Citation
[2022] UKFTT 408
Parties
Appellant: Timothy Watts; Respondents: The Commissioners for His Majesty’s Revenue and Customs
Jurisdiction
United Kingdom
Judgment Date
07 November 2022
Procedural Posture
Income Tax Appeal (first Tier Tribunal Tax) / Final Judgment After Substantive Hearing
Outcome
Appeal allowed in part
Legal Topics
Income Tax, Tax Avoidance, Loss Relief, Gilt Strips, Statutory Interpretation
Tax Law Income Tax Tax Avoidance Loss Relief Gilt Strips Statutory Interpretation

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Parties

Timothy Watts

Appellant

The Commissioners for His Majesty’s Revenue and Customs

Respondents

Procedural Posture

Income Tax Appeal (first Tier Tribunal Tax) / Final Judgment After Substantive Hearing

Legal Issues

  1. 1 Whether the appellant is entitled to loss relief under paragraph 14A Schedule 13 Finance Act 1996 for losses claimed on disposal of gilt strips via a tax avoidance scheme.
  2. 2 Whether the scheme implemented by the appellant constitutes a sham.
  3. 3 Whether the calculation of 'loss' under para 14A(1) is a commercial or legal concept, and whether amounts paid by a third-party purchaser to a trustee are 'amounts payable on the transfer' under para 14A(3)(b).

Ratio Decidendi

The Tribunal found that the arrangements were not a sham and the legal steps taken were effective. However, the calculation of loss under para 14A must be interpreted in light of the statutory purpose and the Ramsay principle. The amount paid by the third-party purchaser to the trustee is not an 'amount payable on the transfer' to the appellant, and thus cannot be excluded from the loss calculation. The appellant is entitled to some loss relief, but the quantum must be reduced to reflect the actual economic loss sustained. The appeal is allowed in part.

Court Disposition

Appeal allowed in part

Orders

  • The appellant's claim for loss relief under para 14A Schedule 13 Finance Act 1996 is allowed in a reduced quantum.
  • HMRC's closure notice is upheld in part; the tax assessment is to be amended to reflect the reduced allowable loss.