The High Court has ruled that HM Revenue & Customs (HMRC) had unfairly taxed ‘several thousand dividends’ between 1990 and 2009. As a direct result thousands of Prudential with-profits investors could receive a share of approximately £150m. The case could benefit other providers who have similar with-profits funds. For example: Aviva, Royal Sun Alliance, Standard Life and Legal & General.
The case centred on the taxation of overseas dividends. Following a change in legislation, 2009, most dividends received from overseas companies are now exempt from tax. Prior to that date the Prudential was obliged to pay corporation tax on the funds in question.
At the end of October Mr Justice Henderson ruled that HMRC had unfairly taxed the funds in question and should reimburse Prudential policyholders the tax paid with compound interest. The High Court judgement read: ‘The Revenue remains unjustly enriched until the date of actual repayment… the interest forms part of the restitutionary claim itself. I would reject the Revenue’s submission that the claimants’ only entitlement is to simple interest…compound interest forms part of the principal sum that needs to be awarded in order to achieve full restitution.’
The ruling is open to appeal by HMRC and it is likely to be a number of years before policy holders affected receive any refunds.
A spokesman for Prudential said: ‘We have taken the action involved, and at this stage it would not be appropriate to comment further as there may be an appeal by HMRC.’
An HMRC spokesman said: 'HMRC is considering this long judgement carefully, before deciding whether to appeal. The uncertainty created by this litigation is largely historic. The key legislation which was the subject of this litigation was changed in 2009.'