Harding v Revenue and Customs: CA 23 Oct 2008

Lapsed Currency conversion option lost status

The taxpayer appealed his assessment to Capital Gains Tax on his redemption of loan notes arising following the sale of his computer company. He said that they were qualifying corporate bonds. The question was whether a security in which a currency conversion option has lapsed, becomes (as the taxpayer contended) for the purposes of section 117(1), at the moment of lapse, ‘a security . . in respect of which no provision is made for conversion into, or redemption in, a currency other than sterling.’ The Revenue contended that that status was lost on the currency conversion.
Held: The appeal failed. ‘the key to the interpretation of section 117(1)(b) is the word ‘provision’. If one were to ask whether, on the date of issue, provision is made ‘in respect of’ the security (meaning for this purpose the agreement represented by the Loan Notes and the terms embodied in them) there would, of course, be no doubt on any possible view.
But if the same question were to be asked at the date when the currency conversion right lapsed or when the Loan Notes were redeemed there would, in my view, be the same answer, namely that ‘provision’ is made for conversion, even though the right can no longer be exercised. In my judgment the word ‘provision’ is a reference to the terms of the agreement, and not simply to subsisting rights. There was no need for section 117(1)(b) to have the phrase ‘at all times’ because it was looking to the terms of the agreement and not to rights which may have existed under it from time to time.
Consequently, there is no contrast here between a literal construction and the purpose of the legislation, nor any need for a special construction to avoid anomalies. There is no anomaly, and Mr Harding’s argument is misconceived. ‘

Rix LJ, Richards LJ, Lawrence Collins LJ
[2008] EWCA Civ 1164, [2008] BTC 772, [2008] STC 3499, [2008] STI 2322
Taxation of Chargeable Gains Act 1992 117
England and Wales
At SCITHarding v Revenue and Customs SCIT 15-Mar-2007
SCIT Capital Gains Tax – qualifying corporate bonds (QCBs) – shares exchanged for loan notes with foreign currency redemption option – section 135 TCGA applying to exchange – loan notes not QCBs on exchange – . .
Appeal fromHarding v HM Revenue and Customs ChD 30-Jan-2008
In section 117 the word ‘security’ identified an asset in the nature of an investment. It was used as meaning something distinct from the debt on it referred to in section 117(1)(a), but it was not simply a reference to the document which evidenced . .
CitedWeston v Garnett (HM Inspector of Taxes) CA 16-Jun-2005
Convertible loan notes had been issued as a channel for future gains.
Held: The loan notes were not a normal commercial loan as defined in Schedule 18 to the 1988 Act, and therefore did not fall within the section so as to allow qualification . .
CitedW T Ramsay Ltd v Inland Revenue Commissioners HL 12-Mar-1981
The taxpayers used schemes to create allowable losses, and now appealed assessment to tax. The schemes involved a series of transactions none of which were a sham, but which had the effect of cancelling each other out.
Held: If the true nature . .
CitedInland Revenue Commissioners v Luke HL 1963
The House applied the literal approach to statutory interpretation. However there may be cases where ‘to achieve the obvious intention and produce a reasonable result [the court] must do some violence to the words.’
Lord Reid said: ‘How, then, . .
CitedMangin v Commissioner of Inland Revenue PC 1971
Lord Donovan considered the rules for interpretation of taxation statutes and said: ‘Thirdly, the object of the construction of a statute being to ascertain the will of the legislature it may be presumed that neither injustice nor absurdity was . .
CitedRevenue and Customs v Bank of Ireland Britain Holdings Ltd CA 8-Feb-2008
. .
CitedTaylor Clark International Ltd v Lewis (Inspector of Taxes) ChD 24-Mar-1997
Currency fluctuation losses arising from a loan to a subsidiary overseas company were not allowable against capital gains tax. The words ‘the debt on a security’ in section 117(1)can refer to an obligation to pay or repay embodied in the Loan Note, . .
CitedJenks v Dickinson (Inspector of Taxes) ChD 16-Jun-1997
Legislation which created a clear anomaly can be interpreted so as to avoid the anomaly if the words used are sufficiently ambiguous as to allow an alternative construction.
Neuberger J discussed the case of Marshall v Kerr, saying: ‘It appears . .
CitedBarclays Mercantile Business Finance Ltd v Mawson (HM Inspector of Taxes) HL 25-Nov-2004
The company had paid substantial sums out in establishing a gas pipeline, and claimed those sums against its tax as capital allowances. The transaction involved a sale and leaseback arrangement which the special commissioners had found to be a . .

Lists of cited by and citing cases may be incomplete.

Capital Gains Tax

Updated: 09 November 2021; Ref: scu.277142