Payments of redress received by the appellants as compensation for the mis-selling of interest rate hedging products (IHRPs) by its bank was a revenue receipt of their property business and was liable to income tax as a post-cessation receipt of the business, subject to a credit for the basic rate tax deducted at source on the interest element.

Background

The appellants (seven brothers) ran a property letting business. In 2001, the brothers approached their bank, National Westminster Bank Plc (NatWest) to restructure an existing loan in order to raise capital to expand the property business. At the time, the loan was self-financing and rental values were rising.

According to the appellants, the bank made it a condition of restructuring the loan that they enter into a swap agreement. NatWest sold the appellants three fixed rate amortising interest rate swaps with a fixed interest rate of 4.51%. The swap agreements were entered into