Drummond, the founder of Virtual Internet, whose wealth has been estimated at more than £100m, had appealed to the special commissioners to challenge the disallowance of a £1.9m loss on his 2000/01 tax bill.

With the help of KPMG, Drummond had set up a scheme enabling him to create the £1.9m loss by taking advantage of a loophole in the taxation of surrendered second-hand life assurance policies.

In his decision, special commissioner Sir Stephen Oliver QC said: ‘Mr Jason Drummond is a man of means. He had realised a gain of £4.8m earlier in the financial year on sale of shares in a company in which he still had a large holding and that holding was, he said, “just one of my assets”.

‘He had asked KPMG to be more proactive in his tax affairs and had been having conversations with them about different schemes or strategies that could be used to offset his tax.’

The scheme KPMG and Drummond attempted to push through was based on a mismatch between income tax and capital gains tax, when a life assurance policy is surrendered and a ‘chargeable event’ is thereby created. This loophole has since been closed in legislation.

Oliver ruled against Drummond, because he found that the proceeds from the surrender of the five policies Drummond had invested in should not be excluded from CGT, as Drummond had argued. Oliver also turned down the appeal because he found that the scheme was artificial and had not been set up for a genuine commercial purpose.