Lloyds Hit with £1bn Tax Bill After Losing Legal Battle with HMRC

Lloyds Banking Group has suffered a major setback after losing a crucial legal battle with HM Revenue and Customs (HMRC), resulting in a £1 billion tax bill.

The London tribunal ruled against Lloyds' attempt to recover losses related to property loans from its Irish operations following the financial crisis. The bank has announced plans to appeal the decision at the higher tax tribunal.

The dispute stemmed from Lloyds' claim for tax relief upon exiting its troubled Irish operations in December 2010. Lloyds acquired the Irish business in 2008 during the height of the financial crisis as part of its purchase of Halifax-owner HBOS.

Two years later, Lloyds announced its decision to close down its 44 Halifax branches in Ireland and end operations there. Problem loans in the Irish business amounted to 43% of the bank's £26.7 billion lending portfolio in the country.

According to sources close to the bank, the Irish subsidiary was shut down after management determined it had no growth potential and was draining the group's finances. Lloyds initially claimed £3.8 billion in tax relief. However, HMRC rejected the claim three years later, arguing that Lloyds was liable for additional corporation tax.

HMRC contended that the bank's desire to claim tax relief was the driving force behind its decision to leave Ireland, an accusation that Lloyds denies.

The appeal process could potentially take several years, extending to the Court of Appeal and Supreme Court. A Lloyds spokesman stated that the bank fundamentally disagrees with the tribunal's decision and will appeal.

Lloyds remains one of the largest taxpayers in the UK and maintains its commitment to paying all taxes due. The bank has indicated that it does not expect to ultimately owe any additional tax. However, it acknowledged that if the appeal is unsuccessful, its current tax liabilities would increase by £950 million, plus £275 million added to its balance sheet for future tax obligations.

An HMRC spokesperson welcomed the tribunal's decision, stating their agreement with the denial of cross-border group relief claims in this case.