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On 4 April 2001, the taxpayer agreed to buy five life assurance policies for £1.96 million. The next day, as agreed, he surrendered the policies.
The surrender value was £1.75 million, which the taxpayer claimed could be excluded from the computation, under TCGA 1992, s 37(1).
The taxpayer claimed a capital gains tax loss of £1.96 million in respect of the policies. Refusing the claim, HMRC said this was an artificial loss based on an avoidance scheme.
The issue was the relation between the treatment of the surrender for income tax and capital gains tax purposes.
In the Court of Appeal said that s 37 existed to prevent double taxation which might otherwise occur in circumstances giving rise to income tax and also a disposal for capital gains tax.
Its purpose was not to allow the creation of an imaginary loss that the taxpayer could offset against a real gain.
The taxpayer’s appeal was dismissed.
