Inevitable result

The taxpayer invested £120 000 in a Sterling Investment Bond in March 2007. It was divided into 1 000 separate insurance policies and partial encashments were permitted.

The taxpayer requested a partial repayment of £60 000 soon afterwards by surrendering equally from each individual contract in the bond. He ticked a box to request the method but later said it was a mistake on his part. He withdrew a further £20 000 a few days later.

The taxpayer did not mention the partial surrenders on his 2007/08 tax return.

HMRC informed the taxpayer in September 2011 that he received a taxable gain arising on chargeable events from the policy. The department assessed him to tax on £74 000: £80 000 less the £6 000 tax-free amount available at the rate of 5% of the original investment.

The taxpayer appealed saying the gain arose because of errors in the...