Ramsay applied to deny loss arising under gilt strips scheme

The taxpayer claimed a substantial tax loss – about £1.35m - in connection with his participation in a gilt strips planning scheme (FA 1996 Sch 13 para 14A now ITTOIA 2005 s 427 to s 460). This involved the taxpayer buying gilt strips at market value for about £1.5m using borrowed funds. An option was then granted to an interest in possession (IIP) trust to acquire the strips for £150 000 – the strike price. The trustees sold the unexercised option to a bank. The premium for this was its market value and this was paid to the taxpayer. The bank then exercised the option requiring the taxpayer to transfer the strips to it for £150 000. The taxpayer’s loss was the difference between the market value of the gilt strips and the strike price.

HMRC refused the claim on the basis that the arrangements comprised...