Chester Lettings Limited v The Commissioners for HMRC
Decision date: 21 April 2026
Neutral citation: [2026] UKFTT 614 (TC)
Overall AI summary confidence: high
Short overview
This short overview is intended to summarise the case, issues and outcome so far as they are supported by the judgment.
AI confidence in this short overview: high
Chester Lettings Ltd received £100,000 under a settlement for mis‑sold Interest Rate Hedging Products and treated it as a capital receipt; HMRC assessed it as taxable revenue under the loan relationships code. The First‑tier Tribunal held the payment was basic redress compensating for excessive payments under the mis‑sold IRHPs and therefore a revenue receipt (and, alternatively, a non‑trading loan relationship profit), dismissed the appeal, and upheld the Closure Notice.
Ratio decidendi
This summary is intended to identify the ratio decidendi, meaning the legal reasons for deciding and the binding part of the decision.
AI confidence in this ratio decidendi summary: high
The Tribunal applied the two‑stage Diplock LJ test: identify the purpose of the payment and then decide whether it substitutes for taxable trading receipts or reimburses deductible trading expenses. Where compensation is calculated to replace revenue expenses paid under a mis‑sold hedging product (basic redress), it is properly characterised as income; interest awarded to compensate for the time value of money is taxable as interest. The loan relationships code can also catch such a profit as a non‑trading loan relationship receipt.
Obiter dicta
This summary is intended to identify obiter dicta, meaning observations made by the way that were not necessary to deciding the case and are not binding.
AI confidence in this obiter dicta summary: medium
The Tribunal observed that invoking an abstract "lost opportunity" does not convert such compensation into capital and that economic notions of opportunity cost are not decisive for tax characterisation; it also noted that the FCA redress framework (basic redress plus standard interest and consequential losses) supports treating basic redress and the standard interest element as revenue in many cases. The Tribunal further noted that a Closure Notice frames the appeal and that HMRC may advance arguments consistent with its stated conclusions.