The Court of Appeal has ruled against the Inland Revenue in a case that will allow investors to continue using so-called ‘flip-flop’ trust arrangements as a means of reducing taxation.
The ruling overturns a High Court decision in March this year in the case of West v Trennery, where Mr Steven G. Trennery and four other top-rate taxpayers and shareholders in transport firm Einkorn were ordered to pay back extra tax to the Revenue.
The controversy centres on the utilisation of offshore trusts to create significant savings in capital gains tax. This was done by placing borrowed money from one trust in another over two tax years, after which the initial trust was wound up. The borrowings were then repaid, with the upshot being that the tax was paid at a rate of 25% as opposed to 40%, although the former rate has since been increased by the Revenue to 34%.
The case is expected to affect many high rate taxpayers, and one City lawyer told the Financial Times that the Appeal Court’s decision "will affect hundreds of people in similar situations who are waiting to see if they would have to pay the extra 15 per cent tax back to the government."
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