The taxpayer subscribed for loan stock of a family company at a price equal to its principal amount. Although the loan stock did not bear any amounts described as interest, a premium was payable on any redemption or repayment thereof "equal to 7.25% per annum of the Principal Amount to be repaid or redeemed, accruing on a daily basis." A few days later, he transferred the loan stock to a family trust. His (denied) claim for a loss on this transfer (arising from discounting the principal and premium payable on maturity using a 12.25% discount rate) turned on concluding that no amount on maturity would be "payable…by way of interest" (per s. 3(6) of Sched. 13 to the Finance Act 1996.)
Before concluding (at para. 19) that "the true nature of the payment was that it was interest," Rimer LJ quoted (at para. 18) with approval a statement of the Upper Tribunal that "interest" has "certain characteristics:"
First, it is calculated by reference to an underlying debt. Second, it is a payment made according to time, by way of compensation for the use of money. Third, the sum payable accrues from day to day or at other periodic intervals. Fourth, whilst the payment so accrues, it does not, in order for it to be interest, have to be paid at any intervals: it is possible for interest not to become payable until the principal becomes payable (see Willingale). Fifth, what the payment is called is not determinative; the question must always be one as to its true nature. Sixth, the fact that an interest payment may be aggregated with a payment of a different nature does not 'denature' the interest payment (Chevron Petroleum UK Ltd v. BP Petroleum Ltd [1981] STC 689, at 694, per Megarry V-C).