Hargreaves Property Holdings Limited v The Commissioners for HMRC

15 April 2024

[2024] EWCA Civ 365

Court of Appeal

A company tried to avoid paying tax on loan interest by using a complicated scheme. The court decided the scheme was just a way to avoid paying taxes and wasn't a real business deal. Therefore, the company had to pay the taxes.

Key Facts

•Hargreaves Property Holdings Limited (Hargreaves) appealed HMRC's assessment that withholding tax should have been deducted on interest paid on loans between 2010 and 2015.
•Hargreaves used a tax planning structure involving loan assignments to third parties, including UK resident company Houmet Trading Limited (Houmet), before interest payments.
•Two grounds of appeal were pursued: (1) whether interest payments to Houmet fell within the s.933 Income Tax Act 2007 (ITA 2007) exception from withholding tax; and (2) whether short-term loans routinely replaced by new loans constituted "yearly interest" under s.874 ITA 2007.

Legal Principles

Purposive construction of statutes is necessary, even for terms with established legal meanings. Ramsay principles apply to determine the true nature of a transaction, considering its overall effect and whether it answers the statutory description.

Barclays Mercantile Business Finance Ltd v Mawson [2005] 1 AC 684, Rossendale BC v Hurstwood Properties (A) Ltd [2021] UKSC 16

Beneficial entitlement, while overlapping with equitable entitlement, requires a "real and practical entitlement" with associated benefits. A mere legal shell of ownership is insufficient.

Wood Preservation v Prior [1969] 1 WLR 1077, Ayerst v C & K (Construction) Limited [1976] AC 167, J Sainsbury plc v O’Connor [1991] 1 WLR 963, Bupa Insurance Limited v HMRC [2014] UKUT 262 (TCC)

Whether interest is 'yearly' depends on a business-like assessment of the loan's likely duration, considering its permanence and nature as an investment.

HMRC v the Joint Administrators of Lehman Brothers International [2019] UKSC 12, Goslings and Sharpe v Blake (Surveyor of Taxes) (1889) 23 QBD 324

Outcomes

Appeal dismissed on both grounds.

Houmet lacked beneficial entitlement to the interest because its involvement was solely tax-motivated and didn't confer any real or practical benefit beyond facilitating the tax avoidance scheme. The short-term loans, despite their individual duration, were found to be part of a long-term funding structure, thus constituting 'yearly interest'.

Hargreaves Property Holdings Limited v The Commissioners for HMRC

Key Facts

Legal Principles

Outcomes

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