Liability of income from deferred remuneration schemes

Odey Asset Management a limited liability partnership set up an arrangement under which a proportion of the business’s profit was allocated to each member and then paid to a corporate partner (PSCL) set up specifically for this purpose. On recommendations made by Odey PSCL exercising its discretionary powers awarded each member a share as ‘special capital’ on basis that Odey would invest it in the fund which the relevant member managed. It would reallocate the special capital to the member over a period of two or three years as long as conditions were met. The member could then withdraw the monies referable to the special capital from the taxpayer.

The taxpayers claimed the members were not subject to tax on the individual deferred profit shares when they were notified of the award – the year of allocation. Further the funds referable to special capital were...