The taxpayer challenged rejection of his claim for a loss relief arising from a ‘relevant discounted security’ within the meaning of Schedule 13 to the Finance Act 1996.
Held: It would only be such if, taking the security as at the time of its issue, the amount payable on maturity, or on any redemption before maturity, would or might be an amount ‘involving a deep gain’. Such amount will involve a deep gain if the issue price is relevantly less than the amount so payable. In identifying the amount so payable, however, paragraph 3(6) requires to be left out of account ‘any amount payable on that occasion by way of interest’.
Held: The appeal failed.
Rimer LJ said: ‘It was possible to identify certain characteristics of an amount payable by way of interest. First, it is calculated by reference to an underlying debt. Second, it is a payment made according to time, by way of compensation for the use of money. Third, the sum payable accrues from day to day or at other periodic intervals. Fourth, whilst the payment so accrues, it does not, in order for it to be interest, have to be paid at any intervals: it is possible for interest not to become payable until the principal becomes payable (see Willingale). Fifth, what the payment is called is not determinative; the question must always be one as to its true nature. Sixth, the fact that an interest payment may be aggregated with a payment of a different nature does not ‘denature’ the interest payment.’
Rimer, Tomlinson, Underhill LJJ
[2014] EWCA Civ 824
Bailii
Finance Act 1996
England and Wales
Citing:
At FTTTx – Pike v Revenue and Customs FTTTx 4-May-2011
FTTTx Income tax – whether a security was a relevant discounted security – security paying on redemption a sum calculated as 7.25% per annum accruing daily – whether ‘interest’ includes sums not paid periodically . .
Appeal from – Pike v HM Revenue and Customs UTTC 10-May-2013
UTTC INCOME TAX – claim for loss on disposal of loan stock – whether loan stock a ‘relevant discounted security’ – FA 1996, Sch 13, para 3 – whether additional payment on redemption of loan stock was interest – . .
Cited – Willingale (Inspector of Taxes) v International Commercial Bank Ltd HL 1978
Discount on a commercial bill differs from interest because, unlike interest, it does not accrue from day to day. If the discount is income, it is assessable to the holder at maturity or when the bill is sold by the holder to a third party because . .
Cited – Chevron Petroleum UK Ltd v BP Petroleum Ltd ChD 1981
The fact that an interest payment may be aggregated with a payment of a different nature does not ‘denature’ the interest payment . .
Lists of cited by and citing cases may be incomplete.
Income Tax
Updated: 05 December 2021; Ref: scu.526962