Capital losses – High Court case
The High Court examined a taxpayers claim to set-off capital losses from the sale of shares of two subsidiary companies. The taxpayer in this case was a UK-resident subsidiary of a US parent company. The claim for capital losses was rejected by HMRC on the grounds that Newco and the taxpayer were ‘connected persons’ within Section 18 TCGA 1992.
The taxpayer appealed this decision and it was left to the High Court to examine whether the taxpayer and Newco were indeed connected persons. The Court, in reaching a decision, looked at two main issues. The first issue concerned when the question of connection should be determined. It was held that the relevant time at which to determine if the parties are connected was the time that the disposal is regarded to have been made.
The second issue looked at whether the parties were indeed connected at the time of disposal. The court held that there was sufficient nexus to connect the taxpayer to Newco under the relevant legislation.
The taxpayer’s appeal was therefore dismissed and HMRC’s position that the loss could not be set-off was upheld.