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Flip-flop too far

05 September 2013
Issue: 4419 / Categories: Tax cases , Inheritance Tax , Trusts

Bowring and another (TC2766)

The two sibling taxpayers were resident and domiciled in the UK. They were beneficiaries of a non-UK resident discretionary trust created by their father in 1969.

The sole trustee was a Guernsey company. Another discretionary trust was set up in 2002 also with the taxpayers as beneficiaries.

It was decided to implement a mark II flip-flop scheme. The assets of the 1969 trust were sold and the proceeds used to buy £4m worth of gilts.

The trustee of the 1969 trust used the gilts in April 2002 as security to borrow £3.8m which was paid to the trustees of the 2002 settlement – who made distributions to the taxpayers of £2.4m.

The trusts of the 1969 trust sold the gilts in May 2002 and repaid the loan.

HMRC ruled that under TCGA 1992 s 97(5) the capital payments received by the taxpayers should be treated...

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