Nature of interest

The taxpayer acquired an off-the-shelf company in March 2007. He was the sole director and held 999 of 1 000 issued shares; his wife held one.

The company issued £6m nominal redeemable loan stock that the taxpayer took at par. The certificate stated the business would pay the taxpayer the redemption proceeds on 15 July 2013 – which would include an amount equal to 7.25% a year of the principal amount to be accruing on a daily basis.

The taxpayer transferred the loan stock to a trust in April 2000 and claimed a loss of £3.4m in respect of the disposal.

HMRC refused the claim on the basis the stock was not a discounted security because the sum paid in addition to the £6m was interest. The First-tier Tribunal and Upper Tribunal both upheld the Revenue’s decision. The taxpayer appealed.

The main issue before the Court of Appeal was...