Ownership and evidence – beneficial entitlement to dividends in doubt

The decision in Rowe v Revenue & Customs [2014] UKFTT 909(TC) (23 September 2014) serves as an important reminder that a claim that the beneficial owner of property is different to the legal or registered owner needs to be properly evidenced for it to be accepted by HMRC and the courts.

Mr Rowe was the registered owner of half of the shares in a close company.  In 2007/08 and 2008/09 the company declared dividends on the shares registered in Mr Rowe’s name of £62,500 and £65.000 respectively and the monies were paid into a joint account that Mr Rowe held with his wife.

Mr Rowe prepared and submitted his tax returns on the basis that he was beneficially entitled to only 50% of the dividends, arguing that his wife was the beneficial owner of half of the shareholding and should be taxed on the other 50% of the dividends.

Mr Rowe had signed the company’s financial statements, which identified him as the sole owner of the shares.  Mr Rowe had not entered into any deeds or other documents defining his interest in the shares and in 2009/10 he transferred legal ownership of half of the shareholding to his wife.

The First-tier Tribunal’s decision hinged on the evidence of ownership that existed: the entries in the share register and annual returns; the statutory accounts of the company and the dividend vouchers that had been prepared by the company secretary.  In consequence, the First-tier Tribunal found that there was no evidence of any express or implied trust over the shares and that, in consequence, Mr Rowe should be taxed as the beneficial owner of all of the shares.

In short, there was an absence of documentary evidence to support a split between legal and beneficial ownership and Mr Rowe’s actions were not consistent with the split of ownership either.

For further information on legal and beneficial ownership, please contact the TaxDesk on 0845 4900 509 and ask for Thomas Dalby.