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The taxpayer aimed to mitigate the tax due on a substantial capital gain in respect of the sale of shares, by investing the money in buying and selling a second hand life insurance policy.
He bought a policy for £4.139 million. On the policy maturing, he received over £4.144 million giving rise to a chargeable event gain of £244,530 under TA 1988, s 541.
He claimed a loss of £4.139 million in his self-assessment tax return on the disposal of the policy and set it against his capital gain.
HMRC did not allow the loss on the ground that it was artificially generated as part of a tax avoidance scheme.
The Special Commissioner agreed that the purchase of the policy was tax driven and not part of an investment strategy. The goal was to obtain tax relief.
The principles in a similar case, Drummond v CRC [2008] STC 2707, applied.
The taxpayer’s appeal was dismissed.
