Lloyds’ potential hit from Irish tax-loss case rises to €1.37bn

UK banking group failed to get tax relief on massive Irish losses before exiting Republic

Lloyds Banking Group’s potential fallout from a long-standing tax dispute with Her Majesty’s Revenue and Customs (HMRC) over losses racked up in the Republic during the financial crisis has risen to almost £1.17 billion (€1.37 billion).

The UK banking group disclosed in its 2020 annual report earlier this year that it failed to convince HMRC that it was entitled to claim tax relief on massive Irish losses before it decided to quit the Republic in 2010 and that an appeal hearing with the UK’s First Tier Tax Tribunal was expected in early 2022.

At the time it put the potential hit at £1.08 billion, comprising a potential £810 million accumulated tax bill, including interest, and loss of £270 million of so-called deferred tax assets (DTAs). DTAs are essentially the use of past losses to lower future tax bills.

Loan book

However, the bank revealed in its recently published report for the first half of 2021 that the potential tax bill has risen to £835 million and possible DTA reduction could amount to £330 million if it loses its case.

The dispute has been running since 2013. “The group, having taken appropriate advice, does not consider that this is a case where additional tax will ultimately fall due,” it reiterated in its most recent report.

Lloyds inherited Bank of Scotland's €32 billion Irish loan book under its rescue takeover of HBOS in 2008. The group handed back its Irish banking licence to the Central Bank in 2010 and began to sell off its mainly impaired local loans at deep discounts. The bank offloaded its remaining €5 billion of Irish mortgages in 2018.

The group recorded €14.8 billion in losses on its Irish loan book after the 2008 crash, including impairment charges on soured debt and shortfalls sustained as it disposed of loan portfolios, according to Irish Times calculations, based on company filings.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times