Proceeds are capital

A settlement by a deed was made in 1993 between the taxpayer as settlor and the trust company. The trustees took part five years later in a scrip dividend scheme aimed at reducing a potential capital gains tax bill.

The shares were sold and the trustees prepared their inheritance tax account for the ten-yearly charge on the basis the scrip dividend proceeds were trust capital.

HMRC issued a ten-year anniversary determination under IHTA 1984 s 64. It covered all relevant property held in the trust and the tax department included the value of the assets representing the proceeds of the sale of scrip dividend shares.

The taxpayer appealed saying the proceeds should be treated as income rather than capital for the purposes of trust law. It was agreed the proceeds were not “relevant property” for the purposes of s 64 if they were income for trust...