In a landmark decision for pension funds, the Special Commissioners held that the sub-underwriting activities of the Post Office and BT schemes did not constitute trading within Case I of Schedule D, rather that the underwriting itself formed an integral part of the schemes’ investment process and took its colour therefrom. Accordingly the underwriting commission was income chargeable under Case VI of Schedule D, but exempted by s.592(3) ICTA 1988.When companies listed on the London Stock Exchange make public issues of shares or rights, the issue may be underwritten. The underwriter, for a commission, agrees to purchase a proportion of any unsold shares at the offer price – the underwriter takes the risk of a fall in the market during the offer period. The underwriter often lays off the risk by inviting large pension funds, and other similar large investors, to enter into sub-underwriting agreements; the fund receives a commission for so doing. The appellant funds sub-underwrote various public issues in this way. In each case, the fund already had a significant investment in the company concerned. Where the pension fund was obliged to honour its sub-underwriting, it usually retained the stock or rights so acquired.Although in the final analysis the decision turns on its own particular facts, it will nevertheless be of considerable significance to all pension funds who carry out underwriting activities.The Special Commissioners also decided that had the underwriting commission been trading income chargeable under Case I of Schedule D, then income tax would have been payable at the rate applicable to trusts rather than the basic rate.Reinstated by Court of Appeal. See Trustees of BT Pension Scheme & Others v. ClarkReversed by the High Court on appeal. See Clark v. Trustees of British Telecom Pension SchemeMichael Flesch KC and Felicity Cullen appeared for the pension fund trustees