Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

Tribunal victory for interest loan payments

by
16th Nov 2012
Save content
Have you found this content useful? Use the button above to save it to your profile.

A first-tier tribunal has ruled that an advance interest payment is deductible, provided the loan is taken out for allowable purposes.

In the Garrett Paul Curran and the Commissioners for HMRC tribunal, Curran took out loans in 2002, 2003 and 2007 from three different companies.

These were to fund onward loans to close two companies carrying on a property investment business.

The loan terms included a provision that interest must be paid at commercial rates over the 30-year tenor. Curran and the lender agreed he could pay the outstanding interest in advance at a discounted value.

He claimed tax relief on the loan repayments he made over the corresponding tax years, as payments of interest.

HMRC argued Curran hadn't been entitled to claim relief and issued discovery assessments against him in relation to tax years 01/02 to 05/06.

In 2005, Curran and HMRC entered into a settlement agreement for his income tax position for 01/02 and 02/03 and HMRC repaid tax to Curran.

HMRC said Curran's payments were in lieu of interest, which would otherwise have become payable under the relevant loan agreement, or repayments of the loan principal.

Curran argued that the interest he paid was at a commercial rate. This was to be calculated by reference to the 30-year period of the loans and not the period of time that passed when he made the payments.

He also said the transactions entered into by him were genuine, and involved real commercial risk and real commercial rewards, therefore the main benefit was not obtaining interest relief.

The tribunal agreed with Curran that interest relief under section 353 was not prohibited by section 787, because obtaining interest relief was not the main benefit that might have been expected to accrue to Mr Curran from the loan transactions.

They said for each loan  Curran had obtained the benefit of loan notes which outweighed the section 353 relief in terms of financial value.

The tribunal also decided that the settlement agreement was binding on both parties.

Jessica Wicker at law firm RPC, said it was reassuring the tribunal didn't allow HMRC to get away with the consequenses of a settlement agreement they had entered into because they thought they made a "discovery".

According to Wicker: “HMRC’s failed attempt to avoid the consequences of a settlement agreement that they had freely entered into with Mr Curran does them little credit.”

Tax experts Gabelle said this case was particularly important.

"It means individuals can accelerate tax relief by paying interest in advance in certain cases. This may be advantageous where an individual's marginal rate of income tax varies from year-to-year," they said.

Tags:

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.