Alexander Beard v The Commissioners for HMRC

The Court of Appeal was asked to decide the proper interpretation of the phrase "dividends of a capital nature" in s.402(4) Income Tax (Trading and Other Income) Act 2005 (ITTOIA). The court held that prior authorities (notably Reid's Trustees, Rae v Lazard and Re Duff's Settlement) show that, in determining whether a distribution is income or capital, the "machinery" or mechanism by which the company effects the distribution is generally determinative; whether the "corpus" remains intact is answered by examining that mechanism. The court accepted the Upper Tribunal's and First-tier Tribunal's factual findings on Jersey company law: Jersey law permitted distributions to be made from share premium under Part 17 (subject to a solvency statement) and that mechanism was the one actually used by Glencore. The Explanatory Notes to ITTOIA and the Tax Law Rewrite context indicated no intended change to this legal approach. As a result the distributions debited to Glencore's share premium account and paid under Part 17 were not "dividends of a capital nature" for the purposes of s.402(4) and were therefore chargeable to income tax; the in specie Lonmin distribution was treated the same. The appeal was dismissed.

This was an appeal from the Upper Tribunal arising from the First-tier Tribunal's decision that certain distributions paid by Glencore plc (a Jersey company tax resident in Switzerland) between 2011 and 2016 were dividends and not "of a capital nature" under s.402(4) ITTOIA. The distributions comprised interim and final cash payments and an in specie distribution of Lonmin plc shares; all were debited to Glencore's share premium account and paid as resolved to be from "capital contribution reserves" (Swiss terminology), and were paid free of Swiss withholding tax pursuant to a Swiss ruling. The total value received by the appellant in the tax years in dispute was of the order of approx. 0m.

(i) Nature of the claim: Mr Beard sought to establish that the distributions were excluded from the s.402 charge because they were "dividends of a capital nature" and should instead be subject to capital gains tax under s.122 TCGA 1992.

(ii) Issues framed by the court:

• How to interpret "dividends of a capital nature" in s.402(4) ITTOIA;
• What role the foreign (Jersey) company law and the mechanism of distribution (Part 17 v Part 12 of the Companies (Jersey) Law 1991) play in characterising a distribution as income or capital;
• Whether the Lonmin in specie distribution was distinguishable from the cash distributions and/or was capital in nature.

(iii) Court's reasoning and outcome: The court treated findings about Jersey law as findings of fact for the tribunals but accepted that appellate review can evaluate statutory provisions and earlier authorities. It held that ITTOIA (a Tax Law Rewrite Project statute) did not intend to change the established approach: the Explanatory Notes expressly referred to prior authorities and to the test of whether the corpus remains intact. The leading authorities establish that the legal machinery used to effect a distribution is usually determinative of its character; mechanics may in some cases be looked behind, but no such exceptional mischaracterisation was shown here. The First-tier Tribunal's findings (that the distributions were made under Part 17, that Part 17 permitted payments from share premium subject to a solvency statement, and that the distributions reduced a capital account) were not shown to be perverse or to involve an Edwards v Bairstow error. WPP (Re WPP plc [2013] JRC 31) supported the view that Jersey law no longer applied a strict maintenance-of-capital rule and that Part 17 is a key mechanism. The Lonmin in specie distribution was paid under the same Part 17 mechanism and so was not of a capital nature. The appeal was dismissed for lack of any material error in the FTT's decision.

Appeal dismissed. The court concluded that ITTOIA did not effect a substantive change to the established law on distinguishing income and capital; the operative test remains the legal machinery by which a distribution is effected (and whether that leaves the corpus intact). The First-tier Tribunal's findings about Jersey law and the fact that Glencore used the Part 17 mechanism to debit share premium (subject to solvency statements) were not shown to be irrational or legally erroneous; consequently the distributions (including the Lonmin in specie distribution) were not "dividends of a capital nature" under s.402(4) ITTOIA and remained chargeable as income.

Appeal from the Upper Tribunal (Tax and Chancery Chamber) (Roth J and Judge Jennifer Dean) [2024] UKUT 73 (TCC), which upheld the First-tier Tribunal (Tax Chamber) decision (Judge Rachel Short) [2022] UKFTT 129 (TC). The Court of Appeal dismissed the appeal: [2025] EWCA Civ 385.