Ramsay applies

Capital gains tax on the redemption of loan notes

In 2004 the taxpayer who later died took advantage of an avoidance scheme to reduce the capital gains tax liability on the redemption of loan notes by converting them by means of a deed of variation from non qualifying corporate bonds (NQCBs) to qualifying corporate bonds (QCBs) when their market value was artificially depressed.

He submitted his 2003/04 tax return on the basis there was no capital gain. On the basis that the scheme did not work HMRC issued a discovery assessment in 2009 on the executors of the taxpayer who had died in the previous year.

The First-tier Tribunal considered first whether the deed of variation had converted the loan notes from NQCB to QCBs. The tribunal referred to Blumenthal (TC2174) which concerned the same scheme. In that case the tribunal found that the effect...