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Big dividends

24 June 2008
Categories: Forum & Feedback
Are dividends received by a trust to be treated as income or capital?

A settlor sold his business 20 years ago to a quoted company. The consideration was wholly listed ordinary shares. Those shares were then placed in a life interest trust for the benefit of his three adult children (now in their 40s) with the remainder to non-family members and charities.

The trust deed allows for capital to be paid to the beneficiaries.

The shares have a negligible capital gains tax base cost but in March 2008 the market value of the trust investments was £2 million with some £1.5 million being the quoted company shares.

Also in March 2008 the quoted company entered a scheme of arrangement where approximately 50% of its £2 billion market capitalisation was returned to shareholders as a 'special dividend' with the listed shares purchased at market value following court approval a few weeks later under Companies Act 1985 s 425.

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