Invalid election

The taxpayer sold its shares in its New Zealand subsidiary to NBNZ Holdings in 1998 for NZ$850m. The consideration was in ten-year unsecured floating rate notes which were qualifying corporate bonds for the purposes of capital gains tax. The effect was that the gain on the sale of shares was held over until the taxpayer disposed of the loan notes.

The taxpayer and the Bank of Scotland entered into a series of transactions to offset the bank’s capital losses against the taxpayer’s heldover gains. In November 2003 the taxpayer redeemed the loan notes. It then made a joint election under TCGA 1992 s 171A with an associated company G to deem the disposal of the loan notes as having been made by G rather than the taxpayer. The intended effect was to enable G to set off the losses against the taxpayer’s capital gains.

HMRC...