Each bank raised about pounds 25m in a property BES scheme launched and closed before the Budget last month. But neither bank had entered the names of the shareholders in its register of members. The Revenue argues that the shares were not, therefore, issued before the Budget. Since the Chancellor outlawed the loan-back system in the Budget, shareholders in these two schemes may lose their tax relief if they take out their six-month loan-back of 74p per pounds 1 gross invested.
Both banks have written to all their BES investors saying they are doing all they can to protect their interests. They dispute the Revenue's point and have legal opinion to back them.
The Revenue would not comment on the issue, but it is possible that it will take a sympathetic line. If not, the matter could make its way to the courts. A spokesman for NatWest said: 'It is clearly in the shareholders' interests for us to fight as hard as we can to get them both the tax relief and the loan.' If the matter drags on for more than six months, NatWest says it is looking at alternative ways of giving shareholders their loans and preserving their tax relief.
Other players in the BES world have been surprised by the Inland Revenue's response so far. 'That's an amazing line for the Revenue to take,' one BES specialist said. 'I think the Revenue would ultimately lose - especially if the banks have counsel's opinion to back them.'
The two banks had allotted shares before Budget day, when the ban on loan-backs came into operation. But the Revenue says the crucial operation is the issue of shares. In its Budget press release, the Revenue said: 'This will normally happen when the shareholding has been entered in the company's Register of Members.'Reuse content