The Case of Mr Benoît d’Angelin: A Deep Dive into Business Investment Relief

In a recent ruling that highlights the stringent nature of tax legislation in the UK, the First-tier Tribunal dismissed an appeal by Mr Benoît d’Angelin, a prominent banker and entrepreneur, regarding the application of Business Investment Relief (BIR). The case revolves around the interpretation of the ‘extraction of value’ rule under the Income Tax Act 2007, which led to a significant tax liability for Mr. d’Angelin.

Background of the Case

In 2016, Mr. d’Angelin, then a UK resident but non-domiciled, introduced £1.5 million of his foreign income into a UK company, d’Angelin and Co Ltd (DCL), which he had founded. This investment was made with the expectation that it would qualify for Business Investment Relief, thereby avoiding UK tax on the remitted income.

Mr. d’Angelin utilised a director’s loan account (DLA) provided by the company to pay for personal expenses, which eventually resulted in a balance of about £71,000. Following an enquiry by HMRC, it was determined that this loan account constituted an ‘extraction of value’, which breached the conditions for BIR and led to the denial of relief for the entire £1.5 million investment. This resulted in an additional tax liability of approximately £675,000.

The Tribunal’s Decision

The Tribunal, led by Dr Christopher McNall, concluded that there was indeed an extraction of value under the terms of the legislation and dismissed Mr. d’Angelin’s appeal. The ruling was based on several key points:

1. Interpretation of ‘Extraction of Value’:The Tribunal rejected Mr. d’Angelin’s argument that ‘extraction of value’ should mean ‘net extraction of value’. Instead, they agreed with HMRC that any value received, regardless of net gain, constitutes an extraction. This interpretation aligns with the legislation’s intent to prevent the personal benefit of invested foreign income without appropriate tax charges.
2. Application of the Legislation: The Tribunal held that providing interest-free credit through the DLA for personal expenses fell squarely within the definition of value extraction. This was supported by the fact that Mr. d’Angelin had repeatedly used the DLA for personal expenditures, which was precisely the kind of activity the legislation aimed to prevent.
3. Statutory Exceptions: Mr. d’Angelin argued that the DLA should fall under the legislation’s exception, which allows for commercial transactions on arm’s length terms. However, the Tribunal found that the DLA was not provided on arm’s length terms and thus did not qualify for the exception.
4. Mitigation Steps: It was common ground that if the extraction of value rule was breached, the statutory mitigation steps were not taken within the prescribed grace period. This meant that the entire £1.5 million was to be treated as remitted to the UK and taxable accordingly.

Key Findings and Evidence

The Tribunal’s findings were extensive and detailed, including the following key points:

• Use of DLA for Personal Expenses: Mr. d’Angelin used the company’s credit card and other facilities for personal expenses, including substantial amounts for private jet travel and family trips to Dubai. His assistant posted these expenditures to the DLA.
• Lack of Immediate Repayment: Despite having sufficient personal funds, Mr. d’Angelin did not promptly repay the DLA. The company’s financial statements for 2017 and 2018 showed outstanding balances, contradicting his claims of repayment.
• Legal Advice: Prior to investing, Mr. d’Angelin had been advised that using the company’s assets personally would be treated as an extraction of value, thereby breaching the conditions for BIR. This advice was confirmed in writing.

Tribunal’s Interpretation of Legislation

The Tribunal examined the purpose and context of the legislation, considering parliamentary materials and HMRC guidance. They concluded that the legislation was designed to ‘ring-fence’ foreign income for business purposes within the UK, with limited and tightly constrained circumstances allowing for value extraction without losing the relief. This interpretation was supported by the Treasury and HMRC’s consultation documents and explanatory notes accompanying the legislation.

Right to Appeal

Mr. d’Angelin retains the right to apply for permission to appeal the Tribunal’s decision. Any such application must be made within 56 days from the date of the decision.

The Tribunal’s decision emphasises the importance of adhering to the strict conditions of Business Investment Relief. Mr. d’Angelin’s case illustrates how personal use of company resources can lead to significant tax liabilities if not managed within the legislative framework. The case serves as a reminder for entrepreneurs and investors to understand and comply with tax relief schemes, ensuring a clear separation of personal and business expenditures. Proper planning, strict adherence to legislative conditions, and prudent financial management are essential to avoid unexpected tax liabilities and ensure the benefits of investment reliefs are fully realised.