In March 2023 the First-tier Tribunal (FTT) judged that redress payments for mis-sold interest rate hedging products were taxable as post-cessation receipts on a partnership and its partners as opposed to the limited company that had acquired the mis-sold interest rate hedging product from the partnership.  The case centred on whether a right to the receive the redress payment existed at the time the business was transferred from a Scottish general partnership to a limited company.

While the case discussed differences between English and Scots law the FTT found that a right to the redress payment only occurred as a result of the Financial Services Authority (as it was known in 2012) requiring regulated businesses to make redress payments.  The timing of this regulatory requirement arose after the business has been transferred from the partnership to the limited company.  It was not possible for the right to receive the redress payment to be transferred as part of the transfer of the business as the right didn’t exist at that time.

The FTT also concluded that even if the right to the redress payment had existed before the transfer of the business as the transfer of the right hadn’t been perfected under Scots law as the counterparty to the mis-sold interest rate hedging product hadn’t been notified of the transfer of the right then the partnership and its partners would have still been the parties that accrued the taxable income.

The decision can be found at: The Finance & Tax Tribunal (tribunals.gov.uk)

Determining what are taxable and non-taxable business transactions and who the transactions relate to can be a tricky matter, as this case highlights.  Please contact us is you require assistance with determining the taxable nature of contentious transactions.