Thomas
| Jurisdiction | UK Non-devolved |
| Judgment Date | 17 March 2014 |
| Neutral Citation | [2014] UKFTT 281 (TC) |
| Date | 17 March 2014 |
| Court | First Tier Tribunal (Tax Chamber) |
[2014] UKFTT 281 (TC)
Judge John N. Dent, Ms Susan Stott
The Appellant did not attend
Mr Jones, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
Income tax - Overseas property purchase using borrowed funds - Whether an "offset mortgage" - Whether interest income on escrow account chargeable under part 4ITTOIA 2005, Pt. 4 - Whether relieved under part 8ITTOIA 2005, Pt. 8 - Appeal dismissed.
The First-tier Tribunal have dismissed a taxpayer's appeal against an assessment to tax on interest credited to a foreign bank account for the same reasons as in the identical case of Coxon[2013] TC 02530. The fact that the account into which the interest was credited had been charged by the bank and retained under security arrangements did not affect the taxability of the interest income on the account holder. Even though the interest credited was to have been offset against amounts due under a loan arrangement, it was calculated without reference to the funds due under the loan agreement and that did not amount to an offset arrangement for tax purposes which required debit and credit balances to be offset and interest calculated by reference to the net amount due. section 841ITTOIA 2005, s. 841 did not apply to relieve the interest from the charge to tax because the inability to transfer funds to the UK because of the bank's security charge was a contractual restriction and for s. 841 to apply the restriction had to be because of foreign legislation (i.e. foreign exchange control restrictions or trading boycott sanctions).
The taxpayer appealed against an assessment by HMRC in respect of interest credited into a Cyprus bank account. The taxpayer had entered into a contract to purchase a new build residential property in Cyprus and paid a 20 per cent deposit with the balance of the purchase price to be funded by a loan. The deposit was paid into an escrow bank account in the name of the taxpayer by a Cypriot lawyer, acting under a power of attorney. Interest was credited to the account and under the terms of the arrangement was to have been used to offset against the sums due under the loan agreement. However, even though the property development had not progressed beyond a shell, most of the contents of the escrow account had been passed to the developer who appeared to have become insolvent.
The Tribunal noted that the case was identical to that of Coxon[2013] TC 02530. In that case the taxpayer had argued that he had never received nor derived any benefit from the interest earned on the escrow account and was, therefore, not taxable on it. Alternatively, the account was part of a Cypriot-style offset mortgage and there was no taxable interest income as the taxpayer had no right to the interest on the account as this would have all been offset against the sums due under the loan agreement. In the further alternative, the interest was not taxable as it was unremittable...
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