Tax Consultant Carter Backer Winter
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Lloyd Webbers win relief for Barbados losses

A failed property development cost musical theatre impresario Andrew Lloyd Webber and his wife around £3m each, which they claimed as capital losses. HMRC argued that the payments made under the contracts were not deductible for CGT purposes. 

14th Feb 2020
Tax Consultant Carter Backer Winter
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Andrew Lloyd Webber

In 2007 Lord and Lady Lloyd Webber entered into a contract to purchase two plots of land and two villas (yet to be constructed) in Barbados. Both taxpayers were UK resident and domiciled in England for the periods concerned, so the capital losses from this project were relevant to their UK tax returns. 

Place in the sun

Between August 2007 and the June 2009, the expected completion date, a number of deposits and payments were required, which totalled nearly $11.2m. 

In February 2009 the property developer issued a press release announcing the suspension of construction works due to cashflow difficulties. In accordance with the 2007 contract, the purchase price was to be reduced by $200 per day for each delay. However, the contract did not provide for what should happen if completion does not take place. 

Valueless rights

In September 2011 the couple entered into a new contract giving up some of their rights under the old 2007 contract in order to recover some of their money. Sadly, the developments never resumed and as such the rights under the 2011 contracts became of negligible value. 

Loss claims challenged

HMRC raised questions around the capital loss claims made by the couple on their 2011/12 tax returns. Discussions between the taxpayers’ advisers and HMRC lasted over four years before the issue proceeding to the first tier tribunal. 

At the hearing all parties were able to agree that the couple had acquired assets, namely rights under the 2007 contract, which were disposed of when they were released in accordance with the 2011 contract. In addition, all parties agreed that the couple had suffered a commercial loss and that it was unlikely that the villas would be built.

The dispute was in respect of whether the amounts paid were to acquire or enhance the contractual rights, which had been disposed of, and hence those payments were allowable deductions under TCGA 1992, s 38. The HMRC view was that the payments were to acquire land under the 2007 contract, and that land was not disposed of in 2011.

HMRC also argued that expenditure incurred was not wholly and exclusively on either the acquisition of the asset or on the enhancement of the asset. The judge disagreed on this point.

FTT decision

The outcome of the hearing established that whilst the payments made by the couple under the contracts, were to ultimately acquire completed villas, they had only acquired the contractual rights under the 2007 contract. These rights were disposed of when they were released from that agreement by the 2011 contract.     

The judge favoured the view of Lord and Lady Lloyd Webber, and accepted that the payments to acquire contractual rights were in order to purchase land and as such the expenditure was allowed under TCGA 1992 s 38. 

The judge explained that had parliament considered that a loss in such circumstances should be excluded from relief, it would have been legislated, as it did in the case of losses resulting from a forfeited deposit.

The judge had also advised the couple that they could apply to the tribunal for HMRC to pay for costs that had been incurred in the tribunal case.

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