The Court was asked whether interest payable under rule 14.23(7) of the Insolvency Rules 2016 is ‘yearly interest’ within the meaning of section 874 of the Income Tax Act 2007. If so, the administrators must deduct income tax before paying interest to creditors. Lehmann Brothers had become insolvent, but in the administration a substantial surplus was achieved. About 5 billion pounds was payable as statutory interest.
Held: The administrators’ appeal failed. Tax was deductible before payment out. Interest is paid as statutory compensation for the loss which the creditors have suffered by being kept out of their money during the administration. Income tax legislation adopted a dichotomy between the treatment of interest of any kind which is not paid out of profits or gains, on the one hand, and yearly interest, on the other hand.
Lord Reed (Deputy President), Lord Carnwath, Lord Hodge, Lady Black, Lord Briggs
 UKSC 12, UKSC 2018/0013,  Bus LR 927,  1 BCLC 609,  STC 661,  BTC 9,  BCC 720,  2 All ER 559,  STI 705,  1 WLR 2173
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Income Tax Act 2007 874, Insolvency Rules 2016 14.23(7)
England and Wales
Cited – Bebb v Bunny 22-Dec-1854
A purchaser liable to pay interest on his purchase-money may deduct income tax from such interest. It was the practice to deduct the tax from the interest on debts upon promissory notes and the like in the offices of the Masters in Chancery. The tax . .
Appeal from – Revenue and Customs v Lomas and Others (Administrators of Lehman Brothers International (Europe)) CA 19-Dec-2017
Cited – LB Holdings Intermediate 2 Ltd, The Joint Administrators of v Lehman Brothers International (Europe), The Joint Administrators of and Others SC 17-May-2017
In the course of the insolvent administration of the bank, substantial additional sums were received. Parties appealed against some orders made on the application to court for directions as to what was to be done with the surplus.
Held: The . .
Cited – Vyse v Foster HL 1874
Where a person already has contractual relations with another, his assumption of a fiduciary role in relation to that other will not necessarily require him to abandon his own contractual interests. . .
Cited – Lomas and Others v HM Revenue and Customs ChD 11-Oct-2016
Receivers’ payment of statutory interest gross
Substantial sums were to be repaid to creditors after the administration of Lehman Brothers produced a substantial surplus. The sums were to carry interest and the court now considered whether the sums due amounted to ‘yearly interest’ under section . .
Cited – Sadler v the South Staffordshire and Birmingham District Steam Tramways Co CA 26-Jun-1889
Interest upon a loan by a banker to a customer for a period of less than a year is not within the words ‘ any yearly interest of money or any annuity or other annual payment ‘ in 16 and 17 Viet. c. 34, s. 40, and therefore the customer is not . .
Cited – Target Holdings Ltd v Redferns (A Firm) and Another HL 21-Jul-1995
The defendant solicitors had acted for a purchaser, Crowngate, which had agreed to buy a property from a company called Mirage for andpound;775,000. Crowngate had arranged however that the property would first be passed through a chain of two . .
Cited – Jefford v Gee CA 4-Mar-1970
The courts of Scotland followed the civil law in the award of interest on damages. The court gave examples of the way in which they apply the ex mora rule when calculating the interest payable in a judgment. If money was wrongfully withheld, then . .
Cited – Corinthian Securities Ltd v Cato CA 1970
Lord Denning MR said: ‘The words ‘short loan’ are not used in the statute: it is a mistake to place too much emphasis on them. The real question is whether the interest payable is ‘yearly interest of money’. Interest is ‘yearly interest of money’ . .
Cited – In Re T Cooper CA 2-Jun-1911
Cited – Inland Revenue Commissioners v Barnato CA 1936
The case concerned the liability of Captain Barnato for super-tax on the sums which he received under a judgment for an account against his former partners in the dissolved firm of Barnato Brothers. The sums found due on the taking of the account . .
Cited – Mayor and Others of Gateshead v Lumsden CA 10-Mar-1914
The plaintiffs, as the urban authority of a borough, had under s. 150 of the Public Health Act, 1875, and the Gateshead Improvement Act 1867, some years before action brought paved and made up certain streets, and had from time to time apportioned . .
Cited – Riches v Westminster Bank Ltd HL 1947
The amount of interest payable on compulsory purchase of land depends upon the value given to the land and the length of the period from the time of entry until reinstatement, the period during which the claimant is dispossessed. During that time, . .
Cited – Moss Empires Ltd v Inland Revenue Comrs HL 1937
Lord Maugham said that for a payment to be an ‘annual payment’ within the meaning of rule 21 it ‘must be taken to have, like interest on money or an annuity, the quality of being recurrent or being capable of recurrence’. . .
Cited – Garston Overseers v Carlisle 1915
The question was as to the scope of the words ‘yearly interest’ used in the Income Tax Acts of 1842 and 1853. The bankers of certain overseers for the poor allowed the latter by arrangement half-yearly interest at an agreed-on rate on the daily . .
Cited – Barlow v Inland Revenue Commissioners 1937
Lists of cited by and citing cases may be incomplete.
Insolvency, Income Tax
Updated: 17 January 2022; Ref: scu.634513