Rogge decision confirms tax on settlement payments
A recent tax tribunal judgement upheld “absurd” tax legislation that means an individual can be taxed on payments made to him or herself.
This first-tier tribunal in Rogge and others v HMRC (TC01747) confirmed that a settlor of a trust who makes interest and rental payments may have to pay income tax on the payments.
Olaf Rogge. a UK resident domiciled outside the UK, paid interest to a discretionary settlement on a £1m loan made to him by the trustees. He argued that under the wording of section 660a of the Income and Corporation Taxes Act (ICTA) 1988 the interest income of the offshore trust meant he cannot be liable for income tax.
Rogge paid interest of more than £100,000 on the loan between 2001 and 2003. HMRC said he owed income tax of more than £40,000 on the interest he paid to the trustees.
The tribunal accepted that a literal interpretation of ICTA 1988, s660a (1) appeared to lead to an “absurd conclusion” when a payment was made to the trust by the settlor, and sympathised with the appellants’ view that this “cannot be right”. However, tribunal judge John Brooks said he was constrained by the wording of the legislation.