Loss relief claims arising on contracts based on stock market movement

The taxpayers entered into contracts with a Seychelles company (P). Those contracts provided the possibility of a profit by making a bet that the FTSE 100 would reach a given level at specified dates in the future. They obtained interest-free loans from a Delaware company to fund their contracts. These were repayable if and when the taxpayers became entitled to a payment from P during the lifetime of the contracts or 50 years from the start of the relevant contract. 

The taxpayers were unsuccessful and maintained they had made losses in the course of their self-employment as derivative traders. They claimed to set those losses against their other taxable income.

HMRC refused the claims and the taxpayers appealed.

The question before the First-tier Tribunal was whether the taxpayers had carried on a trade on a commercial basis with a view to profit.

The tribunal said that activities that were ‘highly...