Alexander Beard v The Commissioners for HMRC

For Income Tax (Trading and Other Income) Act 2005, s 402(4), the character of a dividend from a non-UK company is determined under UK law by applying the foreign law governing the transaction. The legal mechanism or form of distribution is generally decisive in determining whether the corpus or capital of the holding remains intact. The source of the funds and labels used under foreign law are not decisive. A dividend is prima facie income, although mechanism is not conclusive in exceptional cases where commercial substance shows a capital transaction. A distribution from Jersey share premium under the ordinary distribution mechanism was therefore income, whereas a capital reduction mechanism might have produced a capital receipt.

Alexander Beard received cash distributions and an in specie distribution of Lonmin plc shares from Glencore plc between 2011 and 2016. The distributions were made from Glencore’s share premium or capital contribution reserves under Jersey company law. Mr Beard contended that they were dividends of a capital nature under s 402(4) of the Income Tax (Trading and Other Income) Act 2005, taxable instead under capital gains legislation.

The First-tier Tribunal, in [2022] UKFTT 129 (TC), and the Upper Tribunal, referred to in the judgment as [2024] UKUT 73 (TCC), rejected that contention. The appeal concerned the interpretation of s 402(4), the effect of Jersey law, and whether the Lonmin Distribution was a dividend and was of a capital nature.

1. Appeal dismissed. Falk LJ gave the judgment, with Asplin LJ and Peter Jackson LJ agreeing. There was no material error of law in the First-tier Tribunal’s decision.
2. Foreign-law findings are findings of fact. On a statutory appeal, they may be challenged only if the Edwards v Bairstow threshold is met. Where the foreign system and relevant concepts are close to English law, an appellate court may appraise the legislation and the tribunal’s application of legal principles for itself, but must take particular care where the tribunal relied on expert evidence not fully available on appeal. The Court declined to endorse contrary comments in First Nationwide UT, [2011] UKUT 174 (TCC).
3. Income Tax (Trading and Other Income) Act 2005 was part of the Tax Law Rewrite Project. Its Explanatory Notes were a secondary aid which could illuminate context, purpose and the intended continuity of the law, but could not displace clear statutory language. The earlier authorities on income and capital remained relevant.
4. The foreign law identifies the nature and characteristics of the transaction. UK law then determines whether the receipt is income or capital. The mechanism or form of distribution is the essential element in deciding whether the corpus remains intact and is generally determinative. The origin of the distributed amount and foreign-law labels do not decide the issue. Mechanism is not invariably conclusive, since a court may in an exceptional case look to the true commercial substance.
5. Under the Companies (Jersey) Law 1991, a distribution from share premium under Part 17 was distinct from a capital reduction under Part 12. Article 39(4) did not govern a Part 17 distribution. The Cash Distributions were therefore income distributions. The Lonmin Distribution used the same mechanism and was a dividend. It was not of a capital nature: it was a relatively minor distribution in specie and did not divide Glencore or leave its shareholders no nearer the underlying assets. The exceptional circumstances in Sinclair v Lee were absent.

• Court of Appeal (Civil Division) — [2025] EWCA Civ 385: dismissed the appeal.
• Upper Tribunal (Tax and Chancery Chamber) — [2023] UKUT 00073 (TCC) (referred to in the body as [2024] UKUT 73 (TCC)): upheld HMRC’s position that the distributions were dividends but were not of a capital nature.
• First-tier Tribunal — [2022] UKFTT 129 (TC): reached the same conclusion.