Profit not capital in nature

The taxpayer bought floating-rate promissory notes issued by the bank ANZ in December 2001. They had been stripped of interest from Kleinwort Benson Private Bank for a price that reflected the low return on the investment.

The interest coupons were later re-attached to the notes which the taxpayer sold at full market value in September 2003.

He claimed the notes were qualifying corporate bonds and that the profits were in the nature of capital rather than income.

HMRC disagreed saying there had been a discount within the meaning of ITTOIA 2005 s 381 (formerly sch D case III) and that it had been in the nature of income.

The First-tier Tribunal agreed with the Revenue and the taxpayer appealed to the Upper Tribunal.

The two parties agreed that the taxpayer had acquired the notes at a discount “in the normal commercial sense...