Benoit D’Angelin v The Commissioners For HMRC

For the purposes of the business investment relief extraction of value rule, value means value in money or money’s worth, not net value. A recipient need not be better off overall. An interest-free director’s loan account may therefore constitute an extraction of value, even where the recipient could have paid the expenses from personal resources. For investments made before 6 April 2017, value received from an involved company need not also be attributable to the investment. The statutory exception for ordinary-course, arm’s-length transactions applies only where both statutory conditions are met. Deemed employment income on loan interest does not convert the principal advanced into income for the purposes of that exception.

The appellant invested £1.5 million of foreign income in a company and claimed business investment relief under Income Tax Act 2007, section 809VA. The company later operated a director’s loan account for the appellant, which was interest-free, unsecured and repayable on demand. HMRC treated the loan account as an extraction of value and issued a closure notice assessing additional income tax.

The First-tier Tribunal dismissed the appeal, holding that value did not mean net value and that the statutory exception did not apply. The appellant appealed to the Upper Tribunal on the construction of the extraction of value rule, the attribution requirement and the arm’s-length exception.

1. Appeal dismissed. The Upper Tribunal upheld the First-tier Tribunal’s decision on both grounds.
2. “Value” in section 809VH(2) of the Income Tax Act 2007 means value in money or money’s worth. It does not require a net benefit or an improvement in the recipient’s overall position. Reading “net” into the provision would materially rewrite wording which Parliament could readily have included.
3. The broad construction was not absurd or unreasonable. Although the rule may operate harshly by causing the whole relief to be lost following a relatively small extraction, that consequence did not justify departing from the statutory language. A net-value test would also require tribunals to assess the equivalence and commercial adequacy of transactions, while undermining the purpose of the ordinary-course and arm’s-length exception.
4. The First-tier Tribunal’s findings established that the director’s loan account provided value to the appellant and that the value came from the company. The account was an informal, interest-free facility which the appellant used for personal expenditure. The fact that he could have funded that expenditure personally was irrelevant.
5. For the pre-6 April 2017 wording, section 809VH(2)(b)(i) and (ii) were alternatives. Where value was received from an involved company, it did not also have to be attributable to the investment. The attribution requirement applied only where value was received from someone else.
6. The statutory exception in section 809VH(3) did not apply. The principal amounts advanced under the loan account were not treated as income for tax purposes; only deemed interest was so treated. Further, the account was not on arm’s-length terms because it was informal, unsecured, interest-free and repayable on demand.

• Upper Tribunal (Tax and Chancery Chamber): dismissed the appeal and upheld the First-tier Tribunal’s decision.
• First-tier Tribunal (Tax Chamber): in a decision dated 30 May 2024, dismissed the appellant’s appeal against HMRC’s closure notice.