Commentary

I2.208 IRC v Scottish Provident Institution and Barclays Mercantile Business Finance v Mawson

IHT, trusts and estates

I2.208 IRC v Scottish Provident Institution and Barclays Mercantile Business Finance v Mawson

I2.208 IRC v Scottish Provident Institution and Barclays Mercantile Business Finance v Mawson

In 2004 the House of Lords delivered an important judgment on the scope of the Ramsay principle in two cases which it heard together: IRC v Scottish Provident Institution1 and Barclays Mercantile Business Finance Ltd v Mawson (Inspector of Taxes)2.

In IRC v Scottish Provident Institution, a bank and a company initiated a series of transactions, admittedly designed as a tax avoidance scheme, under which each party granted a call option to the other party. The scheme was designed to take advantage of the provisions of FA 1994, ss 147A, 150A and produce a deemed net loss of £20,000,000. The Revenue issued an assessment on the basis that the relevant transactions should be treated as a single composite transaction having no commercial purpose, and giving rise to no gain or loss. The House of Lords upheld the assessment.

Barclays Mercantile Business Finance v Mawson concerned a scheme for the acquisition, leaseback and sub-lease of a pipeline which the taxpayers claimed attracted capital allowances through the incurring of expenditure on the provision of an asset. The pipeline had been purchased, but the purchase was part of a tax scheme chain of circular transactions which conferred the benefit of the capital allowances on the vendor/lessee of the pipeline.

The House of Lords3 produced a single judgment, delivered by Lord Nicholls and covering both cases, in which the Ramsay principle was restated as a principle of purposive construction of statutes. The House

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