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In 2004 the House of Lords delivered an important judgment on the scope of the Ramsay principle in two cases which it heard together: IRC v Scottish Provident Institution¹ and Barclays Mercantile Business Finance Ltd v Mawson (Inspector of Taxes)².

In IRC v Scottish Provident Institution, a bank and a company initiated a series of transactions, admittedly designed as a tax avoidance scheme, under which each party granted a call option to the other party. The scheme was designed to take advantage of the provisions of FA 1994, ss 147A, 150A and produce a deemed net loss of £20,000,000. The Revenue issued an assessment on the basis that the relevant transactions should be treated as a single composite transaction having no commercial purpose, and giving rise to no gain or loss. The House of Lords upheld the assessment.

Barclays Mercantile Business Finance v Mawson concerned a scheme for the acquisition, leaseback and sub-lease of a pipeline which the taxpayers claimed attracted capital allowances through