Jurisdiction(s):
United Kingdom

HMRC v Sehgal: UK UT holds non-enforcement and indemnity release not ‘services’ under remittance rules; clarifies ITA 2007 s 809L Conditions A and B; remittance rules not anti-avoidance

Published on: 10 April 2024

Published by a LexisNexis Tax expert

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Article summary

HMRC v Sehgal and another [2024] UKUT 74 (TCC)

The taxpayers were non-domiciled individuals resident in the UK who were taxed on the remittance basis. They disposed of their shareholdings in VGL to CLS, a Luxembourg-resident company. At completion, IRL—owned indirectly via a Jersey vehicle, SKS—owed £6m to a subsidiary of VGL. Under the share purchase agreement, the taxpayers agreed to indemnify that liability. Soon afterwards, it emerged the debt was irrecoverable, thereby triggering the indemnity. At the behest of CLS’s parent, a structured sequence followed: SKS purchased clothing stock from M, another company within the CLS group, for a sum mirroring the amount owed; at the same time, CLS and the taxpayers entered into a side letter confirming that this payment would reduce the outstanding debt to nil. Under these arrangements, the consideration for the clothing matched the £6m debt and, as recorded in the side letter, operated to eliminate the balance in full. The clothing, however, was worth merely £200,000 and was then gifted...

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