Avoidance
Dry tax charge upheld
A taxpayer has failed in his argument that the Ramsay doctrine should be applied to arrangements into which he had entered. Although the whole scheme was ineffective, an element still gave rise to taxable income and thus a tax charge.
The taxpayer participated in an arrangement declared under the disclosure of tax avoidance scheme (DOTAS) rules. This sought to give investors tax relief on interest on loans to invest in a partnership. Interest was also received. HMRC issued discovery assessments on the grounds that the scheme did not work. It did, however, hold that the interest received was taxable income, though no tax relief was given for the other element of the scheme.
The taxpayer argued that the transactions should be looked at as a whole as per the Ramsay doctrine. The transactions were circular, so not taxable. He had previously abandoned attempts to claim a loss.
The FTT dismissed his appeal. Despite his argument that all the steps in the scheme lacked commerciality, this did not mean that every step was ineffective. The interest received should be treated separately from the failure to obtain interest relief. Income did arise, though no profit had come to the taxpayer, so the dry tax charge was upheld.
The taxpayer’s other argument that the high income child benefit charge was a breach of his human right to family life was not upheld.
Lynch v HMRC [2025] UKFTT 300 (TC)
From Tax Update March 2025, published by Evelyn Partners LLP (now known as S&W Partners LLP)
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