Court of Appeal decides tax and trusts case concerning meaning of “loss” in the context of gilt strip transactions

Watts v Commissioners for HM Revenue and Customs [2025] EWCA Civ 1615

Jonathan Davey KC has received judgment from the Court of Appeal in a case concerning a claim for tax relief on losses said to arise on the sale of gilt strips.

In circumstances where the taxpayer had acquired the gilt strips, granted an option over the strips to a trust of which he was life tenant, and then sold the strips to an investment bank which had acquired the benefit of the option from the trustees, the Court of Appeal held that the taxpayer had not sustained a loss on the transfer (other than a loss of less than 1% of the amount claimed) for the purposes of the phrase “the amount payable on the transfer” (paragraph 14A(3) of Schedule 13 to the Finance Act 1996).

Accordingly, the Court of Appeal upheld the conclusion of both the Upper Tribunal and First-tier Tribunal that on a purposive construction of the relevant legislation, the statutory language was to be interpreted more broadly than the Appellant contended for, and, therefore, on the facts of the case, the “transfer” in question comprised the aggregate of two amounts including, significantly, a payment made for the assignment of the option (as contended for by the Respondents) rather than just one amount, namely the sum paid on the exercise of the option (as contended for by the Appellant).

The Court of Appeal therefore determined the appeal in the Respondents’ favour. In the course of doing so, the Court of Appeal considered, amongst other cases, WT Ramsay Ltd v IRC [1982] AC 300, Berry v HMRC [2011] UKUT 81 (TCC) and Rossendale Borough Council v Hurstwood Properties (A) Ltd [2021] UKSC 16.

Jonathan Davey KC acts for the Respondents with Joshua Carey (Devereux Chambers). Aparna Nathan KC and Colm Kelly (Devereux Chambers) act for the Appellant.

Read the full judgment