Interest on loans to Isle of Man settlements

The taxpayers who were business partners and directors of a property development group in the UK took part in a tax avoidance scheme. Under the scheme the taxpayers set up trusts in the Isle of Man; the trusts entered into a partnership also in the Isle of Man from which each taxpayer was entitled to profits.

In 2005 the trustees entered into loan agreements with another entity in the UK group to finance purchases of land for development by the Isle of Man partnership. The trusts repaid the loans at an agreed rate of interest.

HMRC said the scheme did not work and assessed the taxpayers to income tax on the profits from the partnership.

After several years of litigation in which the taxpayers were unsuccessful the instant appeal before the First-tier Tribunal concerned the final matter to be decided. This was whether interest payable on...