A property development company has failed in its bid to avoid paying tax on a property sale by creating a 'loss' of £1.6m, following a First-tier Tribunal (FTT) ruling that this was solely for the purpose of a tax avoidance scheme.

The FTT heard that Abbeyland expected a significant capital gain to accrue on the sale of one of its properties in 2004. Court documents revealed that 'Abbeyland was advised by its accountants, Shaw & Co, that planning using a capital redemption policy would allow Abbeyland to realise a significant capital loss that could be set against gains arising in the same accounting period or carried forward to set against future gains.'

The FTT ruled that 'the acquisition and subsequent disposal of the bonds were solely for the purposes of a tax avoidance scheme, all the steps of which were pre-ordained, with no commercial motive or effect (other than the necessary incurring of commissions and fees).'

HMRC says it has already recovered tax, interest and penalties of £250m from cases closely resembling the scheme used by Birmingham-based Abbeyland Ltd.

Exchequer Secretary to the Treasury, David Gauke, said: 'HMRC has protected over £1bn this year by taking avoidance schemes to court and is now winning almost 90% of the avoidance cases it litigates.

'Although the vast majority of taxpayers play by the rules, there are some avoidance promoters that believe the more technically complex and contrived the scheme, the safer it is from being challenged. They are wrong and the government has provided HMRC with the resources to comprehensively challenge and clamp down on avoidance.'

HMRC's successful defence of its position in the case (TC/2011/3660), marks its 12th anti-avoidance win in the courts this year.

The First-tier Tribunal's decision followed the Court of Appeal's approach in a broadly similar case - Drummond ([2009] EWCA Civ 608) in disallowing the Abbeyland loss.

More details on the FTT ruling are available from BAIILI, HERE