The Union Castle Mail Steamship Company v HMRC

Cathya Djanogly

In The Union Castle Mail Steamship Company v HMRC [2018] UKUT 316 (2 October 2018) the UT found that a loss triggered by the derecognition of derivative contracts did not ‘arise from’ derivative contracts.

Union Castle held put options and put spreads (the ‘Contracts’). It wished to novate the Contracts to its parent Caledonia but wanted to avoid the related tax charge. Instead Union Castle made a bonus issue of A Shares which carried a right to receive a dividend equal to 95% of the cash flows arising on the close-out of the Contracts thereby effectively transferring the economic ownership of the Contracts to Caledonia. Following the issue Union Castle derecognised 95% of the value of the Contracts. HMRC had disallowed the loss claimed by Union Castle in relation to the derecognition under FA 2002 Sch 26 para 15.

The UT observed that the right approach...

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