V Gadhavi and others (TC6762)
The taxpayers received basic redress payments from NatWest Bank in compensation for having been missold interest rate hedging products when they restructured a loan on their property letting business. HMRC treated the compensation as taxable income.
The taxpayers appealed saying the redress should be treated as capital.
The First-tier Tribunal said the objective of redress was to put the customer in the position they would have been had they not taken the product. Referring to London and Thames Haven Oil Wharves Ltd v Attwooll 43 TC 491 the judge concluded that the compensation was paid for the taxpayers’ liability to pay the amounts due under the swaps that had been missold to them.
The whole of the redress payments were revenue receipts of their property business because the swap payments had been correctly deducted from the profits of the business. They were liable to income tax as a post-cessation receipt...
Please reach out to customer services at +44 (0) 330 161 1234 or 'customer.services@lexisnexis.co.uk' for further assistance.