Conditions were not equivalent

HBOS Treasury Services entered into a complex tax avoidance scheme intended to monetise and 'recoupon' interest rate swap contracts so as to avoid the tax on the transaction.

Under the scheme HBOS formed a new subsidiary D subscribed various shares in the subsidiary for £181 million and novated the swaps into the company for £180 million.

HBOS then sold D to a Swiss company for £150 million. In its corporation tax return HBOS treated the novation of the swaps as tax-free under FA 2002 Sch 26 para 28(1).

HMRC rejected the computation.

The parties made a joint referral to the First-tier Tribunal under FA 1998 Sch 18 para 31A.

The tribunal judge held that FA 2002 Sch 26 para 28 did not apply to the novation of the swaps.

The rights...