United Kingdom Tax Tribunal Clarifies Tax Treatment of Compensation for Mis-Sold Interest-Rate Hedging Products

The United Kingdom First-Tier Tax Tribunal April 21 issued a decision in Case No. TC09853, clarifying the tax treatment of compensation for mis-sold interest-rate hedging products under the loan-relationship rules. The taxpayer, a property rental business, received a settlement from its bank after alleging that the interest-rate hedging features in its loans were mis-sold. The taxpayer treated the payment as capital, claiming it reflected a lost opportunity rather than a loan relationship. The Tax Agency assessed the payment as being taxable income, finding that it was redressed for interest and charges deducted as revenue expenses under the non-trading loan-relationship regime. ...