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Revenue loses tax fight with converted societies

The Inland Revenue has lost a landmark tribunal ruling over the taxation of building society costs when they convert to banks.

A tribunal found in favour of four former societies in their dispute with the Revenue over whether their conversion costs, such as legal and advisers&#39 fees, were tax- deductible.

According to law firm Clifford Chance, the move means future converters, such as Bradford & Bingley, could escape paying tax on conversion costs.

The Special Commissioners&#39 decision says the conversion costs of former societies Halifax, Woolwich, Alliance & Leicester and Northern Rock are fully tax- deductible.

The costs involved were £330m, with Halifax benefiting the most with a saving of £200m.

The law firm which represented the four banks says that, although the decision is not strictly a binding precedent, it is rare for future tribunals to rule against a previous ruling.

Clifford Chance&#39s tax disputes group believes the decision could affect future mutuality debates.

The Revenue says it will not dispute the decision in the High Court.

Clifford Chance partner Nicholas Jordan says: “This is a significant decision and it will no doubt be seized upon by other mutuals, including insurance companies, who find themselves in a similar position.”

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