Nature of payment to government agency

This appeal concerned a dispute about whether £33.5m the taxpayer paid to an Irish government agency was deductible under the loan relationship rules or as an allowable expense for capital gains tax purposes. The taxpayer said the payment should be seen in two component parts. First an amount paid to the government agency for the release of the agency’s security over the property that the taxpayer was developing (the Swiss Centre). Second a payment made in relation to a guarantee which the taxpayer had given in respect of another company’s debts to secure continuing access to development finance for the Swiss Centre.

HMRC said the payment was made because it was in the interests of the wider group of companies of which the taxpayer was a member and in the interests of two individual shareholders/directors.

The First-tier Tribunal decided first that the payment was not deductible as an...