Tax treatment of foreign special dividend

The taxpayer held shares in a US company DPSG. In 2018 it merged with another company using a Delaware special purpose vehicle to form KDP. Immediately before the merger a special dividend of $103.75 per share was paid to the DPSG shareholders. The taxpayer included the whole dividend as a capital gains disposal in his self assessment return. However the documentation accompanying the special dividend explained that it was part income and part a return of capital. HMRC received information under the Foreign Account Tax Compliance Act (FATCA) which included the income element of the dividend paid to the taxpayer. As a result HMRC decided that the income element was taxable as a distribution and raised a discovery assessment to tax that part as income.

The taxpayer appealed and HMRC’s reviewing officer concluded that the whole special dividend was income for tax purposes.

The First-tier Tribunal...