Income or Capital Gain

Income or Capital Gain

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Can a cash bonus received on a redeemable preference share be treated by the individual as a capital gain rather then income? The shares are to be redeemed after 5 years, the individual has received no interest against them in that 5 year period; however the Co is now able to pay interest or a bonus. What way minimises the individuals income tax.
PAUL

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By User deleted
21st Sep 2006 10:06

Not "way" but terms?
I would have thought that, as is usual, the shareholder cannot demand the manner of redemption when the date of the latter arrives. Rather, this is set out in the terms of original issue. For example, was a rate of interest laid down and where the shares cumulative or non-cumulative? Further: was the subscription price £1 but redemption set at £1.20? Perhaps these were zero-preference but then it would be stated from the start that no revenue dividend will ever be paid.
It is pretty certain that the Revenue would go for "income" treatment so a good argument needs to be presented regarding the nature of the "bonus". Really, one would like like to know why and how the company is "able" to to choose between alternative redemption methods.

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