In the case of the Personal Representatives of Sehgal & Anor v HMRC [2026] UKFTT 516 (TC), the FTT has judged that loan notes that were not qualifying corporate bonds remained located in the UK on disposal and as such should be charged to CGT on the arising basis instead of being subject to the remittance basis. The Appellants (the late MS and his wife PS) had believed that the remittance basis applied as It had been understood by the Appellants that the loan notes had been transferred to Jersey prior to their redemption as part of a planning scheme, however the FTT judged that the planning had failed as there was no evidence that the loan notes had been recorded on a register in Jersey before the redemption. The FTT judged that, in submitting tax returns showing no tax payable, the taxpayers had not been negligent as it was reasonable in the circumstances to rely on their advisers. The issue of mitigation of the penalties became academic, but, nevertheless, the FTT commented that it believed that if the penalties had been in point HMRC should have offered more mitigation and reduced the penalties further.
Capital gains tax – situs of assets when disposal made – whether loan notes were “registered” in Jersey at the time of their redemption – meaning of “register” and “registered” for the purposes of s.275(1)(e) TCGA – whether penalties for negligent delivery of incorrect returns under s.95 TMA should be upheld
The Appellants had been resident but not domiciled at the time of the disposal. Under the rules operating at that time they would only be subject to capital gains tax on the arising basis if the assets disposed of were located in the UK. Assets located overseas would be taxed on the remittance basis, so, if the proceeds were kept offshore, the gains would not be taxable in the UK (TCGA 1992, s. 12). Registered loan notes were held to be located “where they are registered” (s. 275(1)(e)) so the key issues were what constituted “a register” and whether the loan notes had actually become registered in Jersey (as planned) before the disposal.
Rejecting arguments that a register could be established by simple accounting records, the FTT judged that:
” ‘a “register’ in the present context is something qualitatively different from a simple ‘record’ (or even a collection of records). The words ‘register’, ‘registered’ and ‘registration’ in our view connote a degree of formality and specificity”
Considering the circumstances, the FTT judged that:
“there was no evidence before us that the underlying accounting records upon which he seeks to rely had even been brought into existence by the time the loan notes were redeemed on 12 May 2006 (remembering that the restructuring of the loan note obligations to substitute ML as the debtor only took place the day before). Nor was there any evidence before us as to precisely what the content of those records was or how they were structured, once they were created. It is therefore impossible to ascertain whether any identifiable section of them would have contained the names and loan note holding values of MS and PS: the best Mr Firth can argue is that all that information would have been contained there somewhere if a proper search had been made, and invite us to find that the records did exist by the time the redemptions took place.
We do not consider this comes close to establishing that, by the time of redemption on 12 May 2006, there existed a ‘register’ of the loan notes in Jersey, in which MS’s and PS’s loan notes were ‘registered’ …
… It follows that we do not consider that the loan notes were registered in a register situated in Jersey within s 275(1)(e) TCGA at the time of their redemption. The loan notes were either unregistered or, if they were registered, it was in the original register maintained on behalf of VGL in the United Kingdom. If the first, then since MS and PS were both resident in the United Kingdom at that time the loan notes instead fell within s 275(1)(c) TCGA; and if the second, then the loan notes were situated in the United Kingdom pursuant to s 275(1)(e) TCGA. In either case, we must dismiss the appeals insofar as they relate to the liabilities to capital gains tax on the redemptions.”
Considering the issue of penalties for negligence in submitting the tax returns, the FTT concluded that:
“In short, in the circumstances we agree with Mr Firth’s submission that ‘the clear evidence is that [MS and PS] took advice and relied on professionals both as to the implementation of the advice and completion of their tax returns in light of what had been implemented. That amounts to reasonable care.’
It follows that we consider the penalties to have been incorrectly imposed and we therefore set them aside pursuant to s 100B TMA.”
The issue of mitigation became academic, but the FTT considered the position and concluded that:
“Overall, therefore, if we had considered the imposition of penalties to be appropriate, we would have found that a 10% penalty rather than a 25% penalty should have been imposed in each case, and we would have reduced the penalties accordingly.”
https://caselaw.nationalarchives.gov.uk/ukftt/tc/2026/516
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