Director’s Loan Account Causes A Business Investment Relief Leak: Exchequer Boosted By £675,307.35

The taxpayer lost his appeal to the Upper Tribunal in the case of Benoit D’Angelin v The Commissioners For HMRC [2025] UKUT 212 (TCC) as the Director’s Loan Account causes a Business Investment Relief (“BIR”) leak. The result was a boost for HMRC to the tune of £675,307.35.

The taxpayer was not domiciled in the UK but was resident and invested £1.5 million of foreign income into a UK company for which he was the sole shareholder, with the company under his control.

The taxpayer lost his BIR. He was taxed under Part 14 of the Income Tax Act 2007 on the remittance basis.

The operation of a director’s loan account caused the BIR to be lost due to the extraction of value rule (Section 809VH of the Income Tax Act 2007) and consequential leak.

The Upper Tribunal endorsed the First Tier Tribunal ruling that the DLA provided value to the taxpayer.

Judgment Highlights

…The purpose of the rule was clearly stated in the consultation document (‘Reform of Taxation of non-domiciled individuals: a consultation’ 2011):

“[2.52] Secondly, the Government proposes to introduce a provision to prevent the value of the investment leaking out to the individual either directly through payments or loans which are not arms-length or through transactions designed to pass value to the individual. For example, it would not be permitted for the company to use the funds invested to guarantee loans made to the individual; nor would it be possible to make payments to a third party which are linked to payments made to the individual. This would not prevent an individual or a connected person enjoying commercial levels of remuneration from the company in which they invest or receiving dividends or interest out of profits made by the business after the investment has occurred.”

The facts of McCool were very different from those in this case but the approach articulated is a general one. We should not apply the concept of ‘absurdity’ restrictively but should give it a wide meaning as explained in the passage above from Bennion. The difficulty faced by Mr d’Angelin in this case is that section 809VH(2)(b)(i) does not produce a result which is unworkable or impracticable, inconvenient, anomalous or illogical, futile or pointless, artificial, or productive of a disproportionate counter-mischief. It is not, in Lord Millett’s terms, sufficiently unreasonable to indicate that Parliament cannot have intended it. As the FTT observed at [135] of the Decision, the extraction of value rule may be seen as harsh in that the extraction of a trivial amount will, if appropriate mitigation steps are not taken in time, result in the loss of BIR and the entirety of the remitted income invested (and not simply the extracted part) becoming taxable. However, a harsh result is not to be equated with an absurd or unreasonable result and, in our view, there are good reasons why Parliament can be presumed to have intended that any extraction of value (including where there is no net gain to the recipient) would breach the extraction of value rule.

…

The use of the term “leaking out” and the reference to payments or loans made either directly or through indirect transactions with third parties shows that the Government was concerned to prevent a broad range of transactions that might be used to pass the value of the investment, ie the amount benefiting from BIR, to the investor without it becoming subject to income tax. Giving ‘value’ a broad meaning seems to us to be consistent with that purpose. Once ‘value’ in the consultation document is understood to refer to value in the broad sense and not only as ‘net value’, the inconsistency contended for by Mr Firth disappears.

…

In view of our conclusion on the meaning of ‘value’, we can take the next two issues (whether there was a receipt of value on these facts and, if so, whether it was from the Company) together and briefly. The FTT made findings of fact in relation to this issue at [105] – [110] and [127] of the Decision which may be summarised as follows:

(1) the DLA was interest-free, unsecured, and repayable on demand [127];

(2) the DLA was a facility which was in use, to the tune of tens of thousands of pounds, for a significant period of time [105];

(3) the existence and subsequent use of the DLA had value to Mr d’Angelin, in money or money’s worth, over-and-above the absence of interest [107];

(4) the DLA was completely informal – there was no loan instrument or note, Company resolution or Board minute [108];

(5) Mr d’Angelin spent no time negotiating or setting up the DLA (and his managerial or executive time was extremely valuable and scarce) [108];

(6) Mr d’Angelin must have seen something of value in having the DLA [109]; and

(7) the DLA provided some benefit or convenience to Mr d’Angelin [110].

36. The key finding of fact is at [107]:

“In our view, the existence and subsequent use of the DLA had value to the Appellant, in money or money’s worth, over-and-above the absence of interest.”