No commercial purpose

The taxpayer was a property development investment and letting business. In anticipation of a large capital gain arising on the sale of one of its properties in 2004 it used a capital redemption policy that enabled the company to realise a capital loss of £1.6m which could be set against current or future gains.

The business acknowledged that the transaction had been undertaken solely to avoid tax. HMRC disallowed the loss on the transaction and the taxpayer appealed.

 The First-tier Tribunal noted that the scheme was similar to the one used in Drummond v CIR [2009] STC 2206 in which the taxpayer had bought and sold second-hand life policies. The Court of Appeal dismissed the taxpayer’s plea in that case and the tribunal in this instance said there was no reason to distinguish the appellant’s transaction from that in Drummond.

The assets used in each...