Compensatory interest received from a bank under the interest rate hedging products redress scheme was liable to higher rate tax, and discovery assessments were valid due to inadequate disclosure of the interest on the appellants’ self-assessment returns.

Summary

Compensatory interest received from a bank under the interest rate hedging products redress scheme was liable to higher rate tax, and discovery assessments were valid due to inadequate disclosure of the interest on the appellants’ self-assessment returns.

Background

On 2 April 2003, the appellants entered into two interest rate swaps with the Royal Bank of Scotland (RBS).  The swaps were expected to hedge their interest rate exposure on a re-mortgage of property forming part of their rental business (although it transpired that the re-mortgage did not proceed).

The appellants received compensation from the RBS