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V M Gadhavi and others v HMRC

In V M Gadhavi and others v HMRC [2018] UKFTT 600 (10 October 2018) the FTT found that compensation paid as a result of the mis-selling of derivatives was taxable as income.

The appellants were seven brothers who together ran a property letting business. They had approached NatWest to restructure an existing loan in order to raise capital to expand the business. The brothers were led to enter into three interest rate swap agreements (interest rate hedging products (IRHPs)) and made payments under the swaps for several years. Following the financial crash interest rates fell dramatically but the Gadhavis were locked into a high fixed rate under the swaps. Ultimately the costs of the swaps resulted in the failure of the business.

Following a review by the FSA of the bank’s handling of ‘unsophisticated customers’ the bank agreed to pay a redress. The issue was...

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