The First Tier Tribunal (FTT) held that interest paid by Hargreaves Property Holdings Ltd, which used revolving long-term funding arrangements that involved the assignment of the right to repayment to a Guernsey-based company, was subject to withholding tax.

Hargreaves was the holding company of a group of family-owned property investment companies with all of the company’s profits derived from the UK. Hargreaves was supported by a series of loans made to it by the shareholders and directors, by family trusts and by its own unapproved retirement benefits scheme. The interest on these loans was also paid by Hargreaves.

In 2004 the loan programme was replaced by a financing structure designed to preserve Hargreaves’ relief from corporation tax for interest paid while relieving that interest from UK tax in the hands of the recipients. There were 47 loans in total.