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Dividend disclosures

Z Ltd, a trading company, originally issued 1,000 ordinary shares, one owned by X (father) and 999 by Y (son). About three years ago, 100 B shares were issued to X and Y, 50 each. The B shares have no voting or capital rights other than the return of their paid up capital. In February 2002, X and Y transferred all the B shares to their wives and since that time numerous dividends have been declared on the B shares. X and Y are higher-rate taxpayers, the wives are not.

The current advisers reported the B share dividends on the wives' tax returns for 2001-02 and 2002-03. X and Y recently received external tax advice that these disclosures may not be correct and they are now confused.

As part of a corporation tax enquiry into Z Ltd, the Revenue requested details of the owners of the B shares, the rights attaching and the dividend history. This information was provided in April 2003. Can readers assist with the following points?

Are the dividend disclosures on the wives' returns correct and if yes, why? (The concern is Tax Bulletins 64 and 69, in particular Examples 1 and 2 in each.)

If the returns are not correct, would X and Y commit an offence under section 144, Finance Act 2000 if they failed to correct the position?

Do the Money Laundering Regulations require a disclosure to the National Criminal Intelligence Service if X and Y do not amend their previous tax returns?

Which tax returns should show any 2003-04 B share dividends and what should be said in the white spaces?

Readers' views are welcomed.

(Query T16,448)

Issue: 3965 / Categories: