Robson v HM Inspector Of Taxes

For relief in respect of a guaranteed loan, the statutory inquiry concerns the use made of the money lent, rather than merely the borrower’s purpose in obtaining it. Where a loan refinances existing borrowing, the claimant must show that the indebtedness replaced by the new loan was itself used wholly to serve the borrower’s trade. Refinancing cannot convert a non-qualifying loan into a qualifying loan where the underlying indebtedness remains in place. The court also confirmed that a tribunal may rely on admissible investigative material when deciding whether a payment was made under a guarantee.

Mr Robson appealed by way of case stated from the General Commissioners’ dismissal of his appeal against a capital gains tax assessment. He sought relief under section 253 of the Taxation of Chargeable Gains Act 1992 for a payment made to Barclays Bank in reduction of a loan granted to his company and guaranteed by him.

The Commissioners found that the company’s earlier borrowing had principally funded work on property belonging to Mr Robson, without invoices or contractual documents, and that the refinancing loan was not a qualifying loan. The central issue was whether the 1993 refinancing loan satisfied section 253(1)(a). The Revenue also challenged the Commissioners’ alternative conclusion concerning payment under the guarantee.

1. The appeal was dismissed. The General Commissioners had not answered the precise legal question raised by the taxpayer’s new argument, but their conclusion was legally correct on the material findings.
2. Section 253(1) directs attention to the use made of the loan. The relevant question is whether the money lent was applied wholly to serve the purposes of a trade carried on by the borrower. The purpose or object in obtaining the loan is not, by itself, decisive: paras [19], [21]-[22].
3. A loan used to refinance existing borrowing may qualify. However, where the new loan merely replaces earlier indebtedness, the lender or guarantor must demonstrate that the indebtedness itself was used wholly to serve the borrower’s trade. A refinancing exercise cannot turn non-qualifying borrowing into qualifying borrowing merely by placing it on improved terms: para [22].
4. The Commissioners were entitled to consider the arrangements under which the earlier work had been undertaken. The absence of invoices and contractual documents, together with the controlling shareholder’s failure to distinguish his affairs from those of the company, entitled them to find that the borrowing had conferred a gratuitous benefit on him rather than furthering the company’s own trade. Their factual conclusion was supported by ample material: para [20].
5. The court’s conclusions on section 253(4) were unnecessary to the result but were given for completeness. Security provided for a third-party borrower may amount to a guarantee, and its realisation may constitute payment under the guarantee. The Commissioners were entitled to weigh the available evidence, including the investigating Inspector’s acceptance of that characterisation. Their decision was not one which no properly directed tribunal could have reached: paras [23]-[27].
6. The Inspector could not raise the recoverability issue for the first time on the appeal. Costs were to be determined after hearing counsel if agreement could not be reached: paras [24], [28].

1. High Court (Chancery Division): appeal by way of case stated dismissed; the General Commissioners’ decision was upheld. No citation for the Commissioners’ decision was stated in the judgment.