The trustees of a settlement received proceeds from the sale of shares issued by way of scrip dividend. The scrip dividend proceeds were originally included in the calculation of a ten-year IHT charge of the settlement (under IHTA 1984, s 64) in May 2003.
However, following a High Court decision (Pierce v Wood [2009] EWHC 3225), the trustees considered that the scrip dividend proceeds were income for trust law purposes, and should not have been included in the ten year IHT charge calculation. HMRC refused a subsequent claim by the trustees for a repayment of IHT (plus interest). The appellant (a trustee of the settlement) appealed, and the case was referred to the Upper Tribunal (UT).
The first issue in the appeal was whether income tax legislation (in ICTA 1988, s 249(6)(b)) deemed the scrip dividend shares to be trust income for trust law purposes. The UT concluded that the deeming effect of s 249(6)(b) should not be
