Summary

Where a company's members had not understood the relevant facts concerning the concept of rights issues and business property relief, the Duomatic principle could not be applied so as to give the character of a rights issue to what was expressed as a share subscription.

Facts

The appellants (V), who were executrices of the estate of the deceased (D), appealed against the respondent Revenue's decision that one million £1 shares which D had acquired two days before her death had not arisen from a reorganisation, within the meaning of the Taxation of Chargeable Gains Act 1992 s.126. Before the company's shares were allocated to her, D had owned shares in the same company. The recently acquired shares would only qualify for business property relief if, in accordance with the Inheritance Tax Act 1984 s.106, D had owned them for two years before the transfer. Accordingly, V submitted that, under Inheritance Tax Act 1984 s.107(4), those shares were to be identified with the shares previously owned by D because there had been a reorganisation of the company's share capital and, by applying the Duomatic principle, a rights issue could be deemed to have been agreed by all the company members.

Held

Since the members had not understood the relevant facts concerning the concept of rights issues and business property relief, the Duomatic principle could not be applied so as to give the character of a rights issue to what was expressed as a share subscription, Duomatic Ltd, Re (1969) 2 Ch 365 Ch D considered.

Appeal dismissed