In Alexander Beard v HMRC [2025] EWCA Civ 385, the Court of Appeal (CoA) found that distributions made by a company incorporated in Jersey and debited to its share premium account were subject to UK Income Tax, not Capital Gains Tax.
Mr Beard, a UK resident, was a shareholder in Glencore plc (Glencore), a Jersey-incorporated company, tax resident in Switzerland.
- Between 2011 and 2016, Mr Beard received various cash distributions from Glencore. He also received one distribution in specie of shares in a subsidiary company, Lonmin plc, in 2015.
- The total value of distributions received by Mr Beard was around £150m.
- The distributions were paid from Glencore’s share premium account, as permitted under Jersey law.
- Mr Beard’s tax returns reported the distributions as subject to Capital Gains Tax (CGT), rather than Income Tax, as he contended they represented capital distributions.
- HMRC raised enquiries, arguing that the distributions should be subject to Income Tax. A Closure notice was issued in October 2019 on that basis.
- Mr Beard Appealed to the First Tier Tribunal (FTT).
The FTT found that:
- The distributions were Dividends for the purpose of English law.
- There was nothing in Jersey law to indicate that the distributions could not be dividends for English law purposes. Jersey law went further than English law in allowing share capital to be distributed.
- The dividends were not of a capital nature.
- The Jersey law definition of distributable profit made everything distributable unless otherwise stated. This included the share premium.
- The mechanism for paying the distributions was the same whether paying out share premium or trading profits. Nothing in the payment mechanism used assimilated the dividends to capital.
- The form of the distributions did not support them being capital in nature. Glencore had two ways under Jersey law to make distributions. One would have resulted in a capital payment; however, how it made the distributions represented a dividend which had not, under Jersey law, been assimilated into capital.
Following a further appeal by Mr Beard, the Upper Tribunal (UT) found that the FTT had correctly concluded that the distributions constituted dividends and were not capital in nature.
Mr Beard appealed to the Court of Appeal (CoA), which found that there was no material error in the FTT’s decision:
- The terms ‘dividend’ and ‘of a capital nature’ had to be interpreted under UK law.
- While a foreign legal system might label something as ‘capital’, this cannot determine whether a transaction gives rise to capital rather than income.
- The factual characteristics of the transaction must be determined with reference to the relevant foreign law. UK tax law must then be applied.
- The key question was whether or not the ‘corpus of the asset’ was left intact after the distributions. If it were not, the receipts would be capital receipts.
- The mechanism or form of the distributions was an essential element in determining whether the corpus, or capital, of the asset was to be regarded as left intact. This mechanism of distribution is usually determinative.
- The focus was on the character of the dividends, not of the funds from which the dividends were made.
- The fact that the distributions were debited to the share premium account, which may, for some Jersey law purposes, be regarded as ‘capital’, did not determine the tax treatment as income or capital.
The appeal was dismissed.
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