The son of the taxpayers (Mr and Mrs Pope), who was the beneficiary of a life insurance policy which he had purchased on his own life, was abducted in Angola by rebels in 1998. His death was likely but never conclusively established. Mrs Pope, who had her son's power of attorney, negotiated with the life insurance provider. In 2002, the provider paid the £100,000 principal amount insured, plus an additional amount of £36,425.97. The policy provided for the accrual of interest on the insured amount, but with the rate of interest "being at the Society's absolute discretion."
The Upper Tribunal agreed with the first-tier tribunal's conclusion that the additional amount was an interest payment and not, as the taxpayers had contended, an ex gratia capital payment. The Tribunal cited Lord Wright in National Westminster Ltd. v. Riches (1945), 28 TC 159 (HL), who stated (at p. 189):
[T]he essence of interest is that it is a payment which becomes due because the creditor has not had his money at the due date. It may be regarded either as representing the profit he might have made if he had the use of the money, or conversely the loss he suffered because he had not that use. The general idea is that he is entitled to compensation for the deprivation.
The payment had clearly been made as compensation for the deprivation between 1998 and 2002 of the principal amount. The amount had been determined in accordance with the insurer's usual business practices, and was continually referred to as "interest" in correspondence with Mrs Pope.
The Upper Tribunal went on to find that the interest was not chargeable as income which the taxpayers had received or to which they were entitled because at the time of receipt all beneficial interests in the unadministered estate were held in suspense.