EWHC 2443 (2009) Mayes v HMRC

Tax Avoidance - Taxpayer won

Case Summary:

Mr Mayes had used the SHIPS 2 Corresponding Deficiency Relief (CDR) planning and had lost before the Special Commissioners.

The product was a Bond comprising a group of 20 pre-existing single premium “non-qualifying” life assurance policies. The scheme involved part-surrender of the policies comprised in the Bonds by a non-resident company (thus creating the potential for relief, a chargeable event, without triggering an actual charge to tax), followed by a full surrender by the individual investor who could then claim the relief. To manufacture a chargeable event and maximise the amount of the relief, the non-resident company added and then withdrew a large sum of money by way of purported premiums within the space of a month.

The Special Commissioner had accepted that two elements of the scheme constituted a pre-ordained, composite, self-cancelling transaction devoid of commercial content which fell to be disregarded pursuant to the Ramsay principle.

The question for the High Court was whether steps inserted for tax avoidance purposes can necessarily be ignored. Because the legislation was so mechanical the judge concluded the artificial steps could not be ignored and Mr Mayes won.

There was also a CGT loss (amounting to the scheme fees) on surrender which the Special Commissioner had said was allowable. The case was remitted for a finding of fact on the breakdown of the payment.