The High Court has reversed the decision of the Special
Commissioners in
Strand Futures and Options Limited v
Vojak Subject to an appeal by the Inland Revenue, this case
decides how a corporate shareholder is taxed on sums that it
receives from a company that purchases its own shares from the
corporate shareholder.
A company is not subject to tax on the Schedule F
dividends that it receives. The issue that arose in this case was
whether, in computing the capital gain or loss that arises on the
disposal of the shares by the corporate shareholder, the amount of
the Schedule F dividend should be excluded from the proceeds of
sale. If the court could be persuaded that it should be excluded
then the corporate shareholder would avoid paying any tax on the
payment that it received.
Since April 1989, the Inland Revenue view has been
that since the distribution does not suffer a corporation tax
charge as income on the sum received then in computing the capital
gain or loss arising on the disposal of the shares the sum received
should not be excluded from the corporation tax on chargeable gains
computation (s37 Taxation of Chargeable Gains Act 1992 excludes
from the computation of the capital gain amounts that have been
taxed as income).
The Special Commissioners upheld the line taken by
the Inland Revenue but the High Court has reversed this and held
that s208 Income and Corporation Taxes Act 1988 not only exempts
Schedule F income distributions but also exempts from corporation
tax distributions of a company that give rise to a capital
gain.
Although the Inland Revenue has not yet reacted
publicly to the decision it will be surprising if the Revenue do
not lodge an appeal.
For further information, please contact:
Mark Nichols
Corporate Tax Partner
+44 (0) 20 7367 2051
[email protected]
Peter Bateman
Professional Support Lawyer
+44 (0) 20 7367 3145
[email protected]om
Mike Boutell
Professional Support Lawyer
+44 (0) 20 7367 2218
[email protected]