Background: in D’Angelin v Revenue and Customs Commissioners [2024] UKFTT 00462 (TC) Mr. Benoît D’Angelin, a UK resident but non-domiciled financier, invested £1.5 million of his foreign income into a newly founded UK company, D’Angelin and Co Ltd, anticipating that the investment would qualify for Business Investment Relief (BIR), rendering it non-taxable. The company provided Mr. D’Angelin with a director's loan account, which he used for personal expenses.

Issue: the central legal issue in this case revolved around whether Mr. D’Angelin's handling of his investment and subsequent financial transactions with D’Angelin and Co Ltd constituted an "extraction of value" under the Income Tax Act 2007, specifically referencing sections 809VH and 809VA. The dispute centered on the £1.5 million Mr. D’Angelin remitted from foreign income into the UK, which he invested in his company with the expectation that it would qualify for Business Investment Relief (BIR), thereby exempting it from UK tax.

HM Revenue and Customs (HMRC) launched an enquiry after observing that Mr. D’Angelin had used a director's loan account provided by his company to cover personal expenses. HMRC's position was that this use of the director's loan account to pay personal expenses constituted an "extraction of value" from the company, contrary to the conditions necessary for maintaining BIR. This led HMRC to deny the relief for the full £1.5 million investment, substantially increasing Mr. D’Angelin’s tax liability by about £675,000.

The tribunal was tasked with determining:

  1. Whether the director's loan account indeed represented an extraction of value under the remittance basis provisions of the tax code.
  2. If the loan account did constitute an extraction of value, whether any statutory exceptions applied that could allow the relief to remain intact despite the transactions in question.

This issue is pivotal for taxpayers as it delineates the boundaries of lawful tax planning under BIR and underscores the potential pitfalls of personal use of company resources, even when done under the advisement of legal and financial professionals.

Decision: the Tribunal dismissed Mr. D’Angelin’s appeal. It held that there was an extraction of value within the statutory meaning. The director's loan account, though used for personal expenses, constituted a taxable benefit and did not fall within the statutory exception that would have allowed for relief.

Significance: this case underscores the stringent scrutiny applied by HMRC in cases involving claims of BIR and the precise conditions under which taxpayers can fall foul of the 'extraction of value rule'. It serves as a crucial precedent for understanding the limitations of BIR and the potential tax liabilities arising from personal use of company assets.