Background
The appellant trustees received a scrip dividend of preference shares in a company on 30 January 2000, to the value of £1,382,750. The appellants sold the preference shares two days later. On 1 March 2009, a few days before the tenth anniversary of the commencement of the settlement, the appellants made a distribution worth £1,260,361 to some beneficiaries.
The First-tier Tribunal (FTT) had to consider three issues: (1) whether the scrip dividend was income or capital in the hands of the appellants; (2) if the scrip dividend was capital, whether it fell to be taken into account for the purposes of calculating an IHT exit charge (under IHTA 1984, s 65); and (3) if the scrip dividend was income, whether the appellants accumulated that income as capital by the time of the distribution on 1 March 2009.
Decision
On the first issue (i.e.
