The decision of the Court of Appeal in First Nationwide [2012] EWCA Civ 278 represents a welcome return to certainty of the treatment of dividends paid out of share premium and is generally a helpful restatement of the settled line of case law on the treatment of distributions as capital or income.
Whether a receipt is capital or income is in the abstract inherently neither ‘good’ nor ‘bad’ for tax purposes; but if the position taken by HMRC in a particular case varies depending on the nature of the relief sought or amount of tax assessed this can create unnecessary uncertainty for taxpayers.
The nature of a distribution as income or capital in the hands of the recipient was well-established prior to First Nationwide. Cases such as Reid’s Trustees [1949] AC 361...
