The taxpayer entered into a scheme for the issue and disposal of corporate loans. He appealed a finding that the loans were caught by section 115 which disallowed exemption because they did not represent a normal commercial loan.
Held: It was a requirement that the debt ‘has at all times represented a normal commercial loan’, which phrase was defined by the 1988 Act. The loan notes were pregnant with profit, and were convertible after six months into new loan notes of the same par value. The second loan notes would, after a similar delay be convertible into shares in the company. The right of conversion carried an indirect right of conversion into something other than corporate bonds. The commissioners decision was correct. ‘I rest my decision on the wording of section 117(1). The rights carried by the first loan notes included the rights to convert into the shares of Carraldo, and the process by which those rights could be exercised was mere machinery. Those rights fell within section 117 and preclude the characterisation of those loan notes as normal commercial loans within the meaning of that section. For those reasons, which do no more than echo the reasoning of [the special commissioner] at paragraph 15 of his decision, this appeal is dismissed.’
Judges:
Moses J
Citations:
Times 07-Jul-2004, [2004] EWHC 1607 (Ch), [2005] STC 617
Statutes:
Taxation of Chargeable Gains Act 1992 115, Income and Corporation Taxes Act 1988 Sch18 para1(5)
Jurisdiction:
England and Wales
Cited by:
Appeal from – Weston 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 . .
Lists of cited by and citing cases may be incomplete.
Capital Gains Tax
Updated: 18 July 2022; Ref: scu.199329