Flip flop works

The taxpayers a brother and sister were resident and domiciled in the UK. They were beneficiaries of an offshore 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 flip-flop mark II 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. Those trustees made distributions to the taxpayers of £2.4m.

In May 2002 the trustee of the 1969 trust sold the gilts and repaid the loan.

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