Payment is interest

The taxpayer bought an off-the-shelf company in March 2000 and became sole director. It issued £6m loan stock all of which the taxpayer took at par.

The loan stock certificate stated that the company would pay him redemption proceeds of £11 780 974 – £6m plus 7.25% of £6m a year – in 13 years’ time.

The taxpayer then formed the Nicholas Pike Settlement 2000 into which he placed the £6m loan stock that then had an open market value of £2 536 437.

He claimed a loss of £3 463 563 in his self-assessment return claiming the loan stock was a discounted security and that FA 1996 Sch 13 para 8 deemed a transfer between connected persons – the taxpayer and the trust – to be at open market value.

HMRC refused the claim and the First-tier Tribunal dismissed the taxpayer’s appeal. It ruled...