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HMRC wins millions from Abbey National avoidance case

A £16m TAX AVOIDANCE SCHEME used by Abbey National Treasury Services and Cater Allen International – both part of the Santander Banking Group – has been shut down at the First-Tier Tax Tribunal.

The financial institution sought to avoid paying corporation tax on the interest on floating loan rate notes. Under these loans, the interest rate fluctuates according to the rise and fall in the market interest rates.

Abbey National Treasury Services argued no corporation tax was due on the interest it accrued on these notes, as the rights had previously been transferred to its offshore parent company, Santander.

When the rights to the interest were transferred, Abbey National Treasury Services built in a buy-back option to transfer the rights of interest back at any stage.

Just days after a large interest payment was made to Santander from the loan notes, Abbey National Treasury Services exercised this buy-back option, retaining the economic benefit of the interest payments, but the company claimed not to be taxable on them.

The court decided the arrangement had no legal basis. In total, the ruling will protect over £86m, as four similar cases were awaiting the ruling.

Financial secretary to the Treasury David Gauke said: “This is welcome news for all those businesses and families who play by the rules.

“HMRC has successfully tackled yet another complex avoidance scheme, protecting substantial amounts of tax at stake and is sending a very clear message to anyone tempted – you won’t get away with it.”

A spokesman for the Santander Banking Group said the transaction was “permitted at the time and reflected the interpretation of relevant accounting treatments and tax law in force then”.

He added: “Subsequently, HMRC disputed some of the technical aspects of the transaction. While we accept that we would not undertake a similar transaction now, nonetheless, we felt it appropriate to test whether our, or HMRC’s, interpretation of the legislation was the right one.” 

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