Main purpose of arrangements was to obtain group relief

Lloyds Banking Group (LBG) had acquired Bank of Scotland Ireland Ltd (BOSI) in 2008-09 as part of its acquisition of HBOS of which BOSI was a subsidiary. BOSI sustained significant losses and in 2010 LBG decided to pull out of the Irish market. It did this by way of a cross border merger under which BOSI’s assets and liabilities would be transferred to the Bank of Scotland plc (BOS) and BOSI would no longer exist. The taxpayer a subsidiary of LBG then claimed cross-border group relief (CBGR) under CTA 2010 s 135.

HMRC refused the claim on the basis that the qualifying loss conditions in s 119 were not met. In the alternative s 127 should apply because the ‘main purpose or one of the main purposes’ of the arrangements was to secure that the relevant amount may be surrendered for the...