UT/2024/000105 - [2025] UKUT 00212 (TCC)

The only issue in this appeal is whether the provision of a director’s loan account (‘DLA’) to the Appellant, Mr d’Angelin, constituted a breach of the ‘extraction of value rule’ in section 809VH(2) of the Income Tax Act 2007 (‘ITA 2007’). All references to sections in this decision are to sections of the ITA 2007, unless otherwise stated, and refer to those provisions as they were in force at the relevant time in relation to this appeal.

In December 2016, Mr d’Angelin, a banker, financier, and entrepreneur, invested £1.5 million of his foreign income in a limited company, d’Angelin and Co Ltd (the ‘Company’), registered in England and Wales. Mr d’Angelin, who was resident but not domiciled in the United Kingdom at all relevant times, was subject to income tax on income and gains remitted to the United Kingdom in accordance with the remittance basis provisions in Part 14 of the ITA 2007. Mr d’Angelin claimed Business Investment Relief (‘BIR’) under section 809VA in relation to the sum of £1.5 million. The effect of BIR was that the foreign income invested was treated as not remitted to the United Kingdom and was, therefore, not subject to income tax.

It was common ground that the sum of £1.5 million invested by Mr d’Angelin had properly attracted BIR. The only issue in this appeal is whether BIR was lost. Having been claimed, BIR is lost if a ‘potentially chargeable event’ occurs subsequently and certain conditions are met. One such potentially chargeable event is a breach of the ‘extraction of value rule’ in section 809VH(2). Between at least 1 April 2017 and 31 December 2018, the Company provided Mr d’Angelin with a DLA which he used to pay (amongst other things) personal expenses. As would be expected, the balance on the account varied over time. The balance was £37,825 on 31 December 2017, it stood at £71,515 on 28 March 2018 and closed the year at £57,303. If the provision of a DLA were an extraction of value then BIR would cease to apply and the sum of £1.5 million would be treated as having been remitted to the United Kingdom with the result that Mr d’Angelin would be liable to pay income tax of some £675,000. After an enquiry, the Respondents (‘HMRC’) concluded that the DLA constituted a breach of the extraction of value rule and, on 15 June 2022, issued a Closure Notice amending Mr d’Angelin’s Self Assessment tax return for 2017/18 to include the foreign income of £1.5 million, thereby creating a liability to pay tax of £675,307.35.

Mr d’Angelin appealed to the First-tier Tribunal (Tax Chamber) (‘FTT’) on the ground that the extraction of value rule was not breached because:

In a decision dated 30 May 2024 (‘the Decision’), the FTT concluded that ‘value’ in section 809VH(2) did not mean ‘net value’ and there had been an extraction of value which did not fall within section 809VH(3). Accordingly, the FTT dismissed Mr d’Angelin’s appeal.

With the permission of the FTT, Mr d’Angelin appeals to the Upper Tribunal (‘UT’) against the FTT’s conclusions in the Decision. The first ground of appeal is that the FTT erred in law in its construction and application of section 809VH(2) and, specifically, in failing to conclude that:

The second ground of appeal is that, if the DLA was a receipt of value within section 809VH(2), the FTT erred in law in concluding that it was not within section 809VH(3) and, specifically, in failing to find that the DLA was not on arm’s-length terms.

The Appellant was represented by Mr Michael Firth KC and Ms Rebecca Murray appeared for HMRC. We are grateful to both counsel for their clear submissions, written and oral, on behalf of the parties. Although we have reviewed and considered them when writing this decision, we have not found it necessary to refer to each and every argument advanced or all the authorities cited in setting out our decision in this appeal.

For the reasons set out below, we have decided that Mr d’Angelin’s appeal must be dismissed.