HBOS Treasury Services Plc(now HBOS Treasury Services Limited) v Her Majesty's Revenue & Customs
Decision date: 12 October 2009
Neutral citation: [2009] UKFTT 261 (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
HBOS Treasury Services monetised swaps by novating them into a newly formed subsidiary, Dorus, then sold Dorus and claimed a deduction for a c.£2.2m fee paid to AIG. The First-tier Tribunal held that paragraph 28 Schedule 26 did not disregard the novation because Dorus’s rights/liabilities were not "equivalent" (a contingent Termination Event altered financial effect), but the £2.2m fee was deductible under paragraph 15 as a debit linked to the related transaction. The Tribunal gave an alternative ruling that, if paragraph 28 had applied, s.30 TCG Act would have adjusted the disposal so the claimed capital loss was entirely disallowed.
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: medium
The operative ratio is that paragraph 28(1) must be read with paragraph 28(4): a mere novation does not automatically satisfy "replace" because novation creates new contracts rather than placing the novatee into the original contract, and the "equivalent" test requires no change in legal effect on matters of potential financial consequence; a contingent liability or termination event that changes financial effect defeats equivalence.
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 remarked that accounting/ commercial evidence (e.g. accrual accounting or commercial purpose) is of limited weight where statutory legal tests govern tax treatment, and observed practically that parties commonly cooperate on novations without charging and may insist on guarantees for credit reasons even if economically neutral; these remarks are advisory rather than binding.