Interest is taxable

The taxpayer agreed to buy an off-plan property in Cyprus. To fund the purchase he borrowed a large amount of money in Swiss francs which he converted into Cypriot pounds and placed in a bank deposit account.

The property was never completed so the taxpayer stopped making payments to the developer. His decision led to the bank freezing the account.

HMRC opened an enquiry into the taxpayer’s affairs when interest paid on the taxpayer’s deposit account came to light. The department claimed the taxpayer was liable to tax on the interest.

He appealed saying he had not benefited from the funds held in the account. It was controlled by the bank and the developer. He was not entitled to the interest – and the account was the equivalent to a UK offset mortgage.

The First-tier Tribunal sympathised with the taxpayer’s predicament but claimed it did...