Legally self-cancelling

The taxpayer claimed corresponding deficiency relief in respect of the surrender of bonds.

Known as Ships 2 this tax avoidance scheme involved life insurance policies being packaged into bonds and sold to a non-resident company.

The company then part-surrendered the policies creating a chargeable event (TA 1988 s 540(1)). This would be followed by the UK-resident investor buying the bonds fully surrendering them to the bond issuer and claiming the relief.

HMRC argued that the transactions when taken together were pre-ordained composite and self-cancelling devoid of commercial content. Thus there was no chargeable event and no relief. The Special Commissioners agreed. So the taxpayer appealed.

The issue before the High Court was how to apply a purposive construction to the relevant legislation to determine whether relief was due. The court said this called for it to examine...