The trustees of a settlement accepted shares in lieu of a dividend which they then sold at market value. The argument centred on whether the proceeds should be taxed as Schedule F income.
Background
The trustees of a settlement each held 35 ordinary £1 shares in a company. On 28 July 1999 by special resolution the company increased its 1 000 ordinary £1 share capital by a further 2 000 000 ordinary 1 penny shares. It also declared a dividend of £20 on each ordinary £1 share but gave the shareholders the option of receiving instead a number of fully paid-up 1 penny shares. The trustees elected to take the shares rather than the bonus which would have amounted to £700 so on 30 July a distribution was made to them of 70 000 bonus shares. The bonus shares were worth £15 million...
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