Outrageous misfortune

The taxpayer and his family moved to the UK in 2004. Following the sale of property in Holland he invested around $1.4m in a series of life insurance policies with Zurich Life. They were arranged by HSBC Private Banking.

He withdrew all funds from the policies over the next two years leaving them with comparatively negligible value so that he could buy a house in the UK. He did not take independent financial advice.

The taxpayer had to complete a form to make the withdrawals. It contained four surrender options; he opted for partial surrender across all policies.

He assumed no taxable gain would arise because he had withdrawn no more than he had paid in to the policies so he did not mention the withdrawals in his tax returns for 2006/07 and 2007/08.

Zurich informed HMRC about the withdrawals in accordance to the...