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R Bretten (TC2604)
The taxpayer established two UK-resident trusts in February 2003. He was the life tenant of one trust with the other held for his children. His daughter was the life tenant of trust two with the remainder left to her children.
In the same month a company O issued to the taxpayer six loan notes with a total value of £500 000. They were relevant discounted securities under FA 1996 Sch 13 para 3 and carried rights of early redemption.
The taxpayer and his daughter as trustees exercised the call option of trust one in March 2003 and the company paid them £499 500. The taxpayer gifted the loan notes to trust two on the same day. The result was that trust one held £499 500 in cash and trust two held the loan notes that were redeemable for £25 000.
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