Loan notes defeat is ‘a nice victory’

HM Revenue & Customs won
its case for £2.6m in unpaid capital gains tax and interest against the former
owner of Sovereign Rubber plc, Vincent Snell.

Snell had sold his 91% stake in the company to Inhoco 564 for £7.3m, but
instead of receiving the fee for his stake in cash Snell chose to receive £6.5m
of the sum in loan notes.

Snell then moved to the Isle of Man and then the Cayman Islands. After
leaving the UK he redeemed £5.6m of the loan notes and avoided £2.6m in capital
gains tax.

But the High Court ruled that Snell had always intended to redeem the loan
notes outside the UK and was thus liable for the outstanding capital gains tax.

Although Snell lost, advisers believe the judgment will actually end up
favouring taxpayers rather than HMRC, because the High Court ruled that there
was nothing wrong in selling a company for loan stock instead of cash if tax
avoidance was not intended.

Bill Dodwell, corporate tax partner at Deloitte, said a court decision that
selling a company for loan stock, if avoidance was not intended, would benefit
taxpayers generally.

‘This case knocks out the folklore that selling a business for loan notes is
a problem when it comes to tax,’ Dodwell said.

‘There are other cases like this out there and this is a nice victory for the

He added that HMRC would no longer be able to take issue with individuals who
chose to sell business for paper instead of cash following the judgement.

Read the High Court ruling at

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