It has been a decade. But a long-running dispute between UK authorities and Lloyds Banking Group over tax relief claimed by the bank on crisis-era losses sustained in the Republic have come to a head.
The banking giant said in its interim results release on Wednesday that the UK’s First Tier Tax Tribunal had, in May, finally heard the bank’s appeal against His Majesty’s Revenue and Customs’s (HMRC) view that Lloyds was wrong in claiming tax relief on losses clocked up in the State.
The losses stem from Lloyds’ sale of a mainly dire portfolio of €32 billion of Irish loans it inherited in 2008 from its shotgun merger with HBOS. It took less than two years for Lloyds to pull the plug on HBOS’s Bank of Scotland (Ireland) unit, hand back its licence, and start selling off the Irish loans.
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Lloyds was forced to stomach as much as 90 per cent losses on some Irish commercial property loans it offloaded as part of the wind-down.
The UK banking group disclosed in its 2020 annual report it had failed, following an HMRC inquiry, to convince tax officials that it was entitled to claim relief on the Irish losses — and that it was taking an appeal to the country’s First Tier Tax Tribunal.
A spokeswoman for the bank declined to say when a decision is expected.
Hundreds of millions
The sums involved are not inconsiderable. If the tax tribunal decides in favour of HMRC, it will increase Lloyds’ current tax liabilities by about £895 million (€1.05 billion), including interest — and reduce the group’s so-called deferred tax assets by about £295 million. It amounts to the equivalent of €1.39 billion.
Lloyds said that following the conclusion of the hearing in May and “having taken appropriate advice”, it does not believe it will face a financial hit as a result of the case.
But given the high stakes involved, it’s possible that one side or the other will appeal the outcome to an upper tribunal —and, after that, to the UK court of appeals and supreme court. This one looks likely to run for some time.
