The Upper Tribunal has handed HMRC a comprehensive win in Swiss Centre Limited v HMRC [2026] UKUT 00227 (TCC), confirming that a £34 million payment — taken straight to the P&L — was not deductible for corporation tax. Not under the loan relationship rules. Not as capital enhancement expenditure. Not at all.
This is not an obscure technical skirmish. The principles in this decision reach directly into how CFOs structure guarantees, document inter-company transactions, and demonstrate commercial purpose for group financing arrangements. Get any of those wrong, and HMRC has a roadmap to deny your deduction.
The Facts in Plain English
Swiss Centre Limited (SCL) was part of the “MAR Connection” — a sprawling property and construction group built up by Mr McAleer and Mr Laverty across numerous companies and trusts, concentrated primarily in Northern Ireland and London.
SCL owned the Swiss Centre property in London, being redeveloped into a luxury hotel and apartments. The project was funded via a facility between the group’s holding company, Leicester Square Investments Ltd (LSI), and a subsidiary of Allied Irish Banks. SCL had also provided a guarantee over Swiss Centre for a separate loan to another group entity, Lavangna Limited, for its own Irish property development projects.
When the 2008 financial crisis hit, property values collapsed, and the loans were transferred to NAMA — the Irish Government’s National Asset Management Agency, set up to hoover up distressed debt and extract maximum recovery. NAMA held the LSI facility, the LSI/SCL security, and the Lavangna guarantee.
The group recognised that if NAMA called the loans, the whole structure could unravel. The decision was taken to sell the Swiss Centre and use the proceeds to negotiate NAMA’s release. Out of total proceeds of £197.5 million, the group agreed to pay NAMA £163 million. SCL’s share of that cost — the amount it needed to pay to clear the security over its own property and discharge the Lavangna guarantee — was just under £34 million, comprising roughly £22 million as the “Additional Sum” and €11.5 million on the “Lavangna Sum.”
SCL put the £34 million through its P&L as a deductible expense and argued for corporation tax relief. HMRC disagreed, issued a discovery assessment for the additional tax (around £29.5 million at stake), and the litigation began.
Three Arguments, Three Failures
Argument 1: The Loan Relationship Route
SCL argued that the £34 million — or at least the Lavangna Sum — should be treated as a deductible loss arising from a loan relationship under Part 5 of CTA 2009.
The logic: when SCL paid the Lavangna debt to NAMA under its guarantee, it effectively stepped into NAMA’s shoes as a creditor, creating a new loan relationship between SCL and Lavangna. Loss on that relationship = deductible debit.
Both the First-tier Tribunal and the Upper Tribunal rejected this. Paying a third party’s debt under a guarantee only creates a loan relationship if there is a genuine transaction for the lending of money — and an actual prospect of recovering the amount from the principal debtor. On the facts, Lavangna’s position was worthless. There was no real loan relationship created, because there was no realistic prospect of repayment. As for the Additional Sum, the tribunals found it was paid for multiple reasons connected to the wider group’s debt position, not solely as a consequence of SCL’s own loan relationships.
Argument 2: The Unallowable Purpose Point
Even if a loan relationship debit could theoretically have been established, the Upper Tribunal confirmed that the unallowable purpose rules in sections 441–442 of CTA 2009 would have denied the relief in any event.
Under those provisions, a debit is disallowed to the extent that it is referable to an unallowable purpose — defined as any purpose that is not among “the business or other commercial purposes of the company.” The payment here was made principally to protect the broader MAR Connection, to preserve the wealth and reputation of the individual shareholders, and to prevent NAMA calling in debts owed by other group entities. Those are not SCL’s commercial purposes. They are someone else’s commercial purposes.
The Upper Tribunal’s observation here is the one of widest practical significance: where a company is party to a loan relationship — or a related transaction — principally for the benefit of others in its group rather than for its own commercial reasons, HMRC has a clear statutory basis to deny the deduction.
Argument 3: Capital Gains Enhancement
SCL’s final argument was that the Additional Sum should be deductible as enhancement expenditure under section 38(1)(b) of TCGA 1992 — incurred to enhance the value of the Swiss Centre, and reflected in the state or nature of the asset.
This also failed. The payment was not made wholly and exclusively to enhance the Swiss Centre. It was made to extract the group from a web of interconnected NAMA-held debts. Enhancement expenditure requires singular focus on the asset; the reality here was that the payment served multiple purposes across multiple group entities.
Why This Decision Matters Beyond the Facts
The Swiss Centre case is a textbook illustration of three risks that CFOs in group structures face every day.
Risk 1: Guarantee Payments Are Not Automatically Deductible
Many finance teams treat guarantee payments as straightforward business costs. They are not. The loan relationship rules require a genuine money-lending transaction, a creditor-debtor relationship, and — critically — a realistic prospect of recovery from the primary debtor. Where the underlying borrower is insolvent or worthless, the guarantee payment does not create a new deductible loan relationship. It simply disappears.
Review your group’s guarantees now. If SCL had been issued a formal on-demand loan to Lavangna (with appropriate terms, documentation, and realistic recovery expectations), the position might have been different. Corporate plumbing matters.
Risk 2: Group Purpose Is Not Company Purpose
The unallowable purpose rules are not exotic anti-avoidance. They apply to ordinary commercial transactions where the real driver is group benefit rather than the specific entity’s commercial interests. HMRC is increasingly using sections 441–442 as a primary challenge tool — not just a fallback — in group financing enquiries.
If your company is providing guarantees, making cross-group payments, or entering into related transactions primarily to support another entity in the group, you need to ask: what is this entity’s own commercial purpose? Document that purpose contemporaneously. If you cannot articulate it clearly at the time, you will not be able to articulate it convincingly in a tribunal five years later.
Risk 3: Mixed Purposes Are Dangerous Purposes
Both the loan relationship challenge and the capital enhancement argument failed here because the payments served multiple objectives — some of them SCL’s, most of them the wider group’s or the individual shareholders’. Where a payment is made for mixed reasons, HMRC only needs to demonstrate that one of those reasons is not the company’s own commercial purpose to engage the unallowable purpose rules. In practice, that means mixed-purpose payments in complex group structures are almost always at risk.
Six CFO Actions Before Your Next Group Finance Review
1. Audit your inter-company guarantees. For each guarantee your entity has provided, ask: is there a genuine prospect of recovery from the primary borrower? Is the guarantee documented as a loan relationship if recovery is anticipated? Has the commercial purpose been recorded at the point of entry?
2. Review P&L treatment of guarantee payments. Any payment made under a third-party guarantee that has been taken to P&L as a deductible debit should be reviewed against the Swiss Centre principles. The burden is on the taxpayer to demonstrate loan relationship treatment is correct — not on HMRC to prove otherwise.
3. Map your group’s commercial purposes entity by entity. In a complex group, each entity needs its own clear commercial rationale for the transactions it enters into. A group-wide commercial rationale is not sufficient. The question is always: what is this company’s commercial purpose?
4. Contemporaneous documentation is non-negotiable. The Upper Tribunal, like the First-tier Tribunal before it, placed heavy weight on contemporaneous documents, board minutes, and the credibility of witness evidence. Decisions made “for the benefit of the MAR Connection” — as recorded in emails and board discussions — were used against the taxpayer. Board papers and transaction rationale documents should reflect the specific entity’s commercial objectives, not just the group’s.
5. Challenge your advisers on unallowable purpose before the transaction, not after. Sections 441–442 CTA 2009 should be part of any pre-transaction review of group financing arrangements. If your tax advisers are not asking the question — “is there an unallowable purpose risk here?” — before you execute the transaction, ask them now.
6. Treat discovery assessments as a serious risk signal. The tax at stake in this case (approximately £29.5 million) arose from a discovery assessment. HMRC’s ability to issue discovery assessments for periods long closed is a standing risk for complex group transactions. The Swiss Centre transaction related to an accounting period ending March 2012 — the litigation ran for years. Keep records for longer than you think you need to.
Professional Commentary and Key References
KPMG’s Tax Management and Governance team flagged that the Upper Tribunal’s observations on guarantor payments and the unallowable purpose provisions “will be of wider interest” — measured language from a firm that rarely underplays a significant decision.
The full decision is available from HMRC’s Upper Tribunal decisions register and directly from the judgment PDF on GOV.UK. The First-tier Tribunal decision — Swiss Centre Limited v HMRC [2023] TC08825 — provides the detailed factual background. Ross Martin Tax’s analysis notes the wider business purpose that prevented the £34 million P&L deduction. Claritax News provides a detailed technical breakdown of both tribunal decisions.
The HMRC Corporate Finance Manual at CFM38115 sets out HMRC’s published approach to unallowable purpose in loan relationships — worth reading alongside the judgment. For the statutory provisions: Part 5 CTA 2009 (loan relationships), sections 441–442 CTA 2009 (unallowable purpose), and section 38(1)(b) TCGA 1992 (enhancement expenditure).
The Bottom Line
HMRC won comprehensively. A £34 million P&L deduction was denied in its entirety. The principles that produced that outcome are not specific to property groups or Irish NAMA debt — they apply to any CFO whose entity provides guarantees for group companies, makes payments in service of a wider group strategy, or enters into financing transactions whose commercial purpose sits at the group level rather than the individual entity level.
If any of that sounds like your business, now is the time to review it — not when HMRC opens an enquiry.
Tanous Limited provides CFO advisory services and tax consulting to PE-backed businesses and owner-managed enterprises. If you want to stress-test your group’s loan relationship positions or review guarantee structures before HMRC does, get in touch with Mark Hendy.