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A UK resident and domiciled client received a substantial special dividend from a major corporation in the US. This was paid just before its merger with another corporation in July 2018. The Internal Revenue Service (IRS) gave approval that the payment should be split between a capital element and an income element.
Would it be correct to follow this treatment when my client declares the payment on his 2018-19 tax return? Or should the entire sum be treated as liable to income tax?
As a twist on this if the entire sum is liable to UK income tax in the hands of trustees of an interest in possession trust (IIP) trust is there the risk of a mismatch if the life tenant bears the tax but the trustees retain the capital element?
Readers’ thoughts are appreciated.
Query 19 443 – Recipient.
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