HMRC closes £60m Land Securities/Morgan Stanley scheme

A TAX AVOIDANCE SCHEME involving investment bank Morgan Stanley and FTSE 100 business Land Securities has been closed by HMRC in the upper-tier tribunal.

The arrangement, which shielded £60m from the public purse, saw Land Securities sell shares in one of its group companies to a Cayman Island subsidiary of Morgan Stanley, with the bank then inflating the value of the shares by pumping money into the subsidiary.

Land Securities bought back the shares at a higher price, claiming that an existing anti-avoidance rule meant it had made a loss of £200m which could be used as a deduction against tax. In the tribunal, Land Securities claimed disallowing the loss would not be fair as it would be out of pocket if it sold the shares in the future.

The tribunal disallowed the loss on the basis that if it were accepted, it would “plainly avoid the realisation of the gain indefinitely”, and both businesses “had acknowledged the latent gain”.

HMRC director-general for business tax Jim Harra, said: “This scheme was flagrant tax avoidance that provided finance to a FTSE 100 company that appeared cheap because the UK tax payer was expected to pick up a £60m bill.

“This is HMRC’s eighth consecutive success in court against tax avoidance, sending a clear message that indulging in tax avoidance is now a very high risk and expensive strategy, because HMRC will continue to challenge avoidance at every turn.”