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Ramsay principle applies to transactions

01 February 2021
Issue: 4778 / Categories: Tax cases
S Padfield and others (TC7983)

The taxpayers entered into arrangements known as the volatility investment strategy intended to produce either capital losses or income losses.

HMRC refused the loss claims and the taxpayers appealed.

The First-tier Tribunal said the transactions relating to each trade should be characterised as a composite self-cancelling transaction with the result that no allowable loss or loss deductible arose.

The case fell within the Ramsay principle ([1981] STC 174). The judge said: ‘Once one determines that the composite transaction in this case comprised not just the two forward contracts but actually the two forward contracts (together with the related acquisition and disposal) … the present facts are indistinguishable from those in Ramsay.’

On capital losses the tribunal said these would not be allowable in any event because a main purpose of the arrangements was to obtain a tax advantage so they were caught by the targeted anti-avoidance rule...

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