Taxation

Tax avoidance - rent factoring scheme - sum received under rent assignment agreement not taxable as income receiptInland Revenue Comrs v John Lewis Properties Ltd: ChD (Lightman J): 13 June 2001The taxpayer was a property holding company for a trading partnership group.

In 1995, in pursuance of a widely marketed scheme, it assigned to a bank for a five-year period its right to rent on several commercial properties payable to it by one of its trading companies.

In return, the bank made the taxpayer a 25m lump sum payment.

By agreement, the rents were paid by the trading company direct to the bank.The taxpayer was assessed for 31 million corporation tax for its accounting period to January 1996 on the basis that the lump sum was income, not a capital receipt, for corporation tax purposes.

The taxpayer's appeal was upheld in principle by a special commissioner.

The Crown appealed.Launcelot Henderson QC and Michael Furness QC (instructed by the solicitor of Inland Revenue) for the Crown.

David Goldberg QC and Wayne Clark (instructed by Lovells) for the taxpayers.Held, dismissing the appeal, that section 110 of the Finance Act 2000 now made provisions directed at such schemes by taxing the price obtained on relevant property assignments; that the sole issue was as whether, prior to section 110 coming into force, the receipt by the taxpayer of the lump sum was to be taxed as capital or income; that on a true analysis the sum was capital; and that the principles laid down in Ramsay (WT) Ltd v Inland Revenue Commissioners [1982] AC 300 to combat tax avoidance could not be applied tore-characterise its receipt for tax purposes as income.