Berry gilt strips tax avoidance arrangement fails on appeal to the Upper Tribunal

15 April 2011. Published by Adam Craggs, Partner

The Upper Tribunal (Lewison J) ('UT') has dismissed the taxpayer's appeal against the First-tier Tribunal's ('FTT') decision that he was not entitled to relief for losses suffered as a result of a gilt strip tax planning arrangement – Berry v HMRC [2011] UKUT 81.

The UT, applying the Ramsay principle, determined that the word "loss" in the context of the relevant discounted securities legislation (paragraph 14A, Schedule 13, Finance Act 1996 now sections 427 to 460, Income Tax (Trading and Other Income) Act 2005) meant a real loss, that is, a loss that arose from real commercial outcomes.  In reaching his conclusion, Lewison J noted that there is a general expectation that when Parliament uses a word like "loss" it means a commercial loss but that that expectation can be displaced by the express terms of the statute (for example, by an algebraic or artificial approach to quantifying the loss).  The UT also determined that the FTT had made no error in law in treating all the steps in the transaction as a single transaction and in disregarding the "anti-Ramsay" device.  The FTT's view of the facts was, in the UT's view, a realistic one.

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