Payment to director was a distribution

The taxpayer bought a property in March 2009 for £725 000. In December 2014 it sold the property for £1.03m and paid £305 000 to A who was the sole shareholder of the taxpayer.

HMRC said the taxpayer was liable to corporation tax on the gain on the disposal of the property and amended the tax return.

The taxpayer accepted it had been the beneficial owner of the property but said the payment was deductible on the basis that it had a non-trading loan relationship deficit (NTLRD) on the funds which A had provided to enable it to buy the property. HMRC considered the payment to be a distribution.

The First-tier Tribunal dismissed the taxpayer’s appeal.

The Upper Tribunal decided that the payment was a distribution. The judges said ‘a profit or gain on a disposal of a capital asset forms part of “the results” of a company’s...