Income and Corporation Taxes Act 1988

4 (1) For the purposes of this Chapter, the distributable income of a company for an accounting period shall be the amount of its distributable profits for the period exclusive of the part attributable to chargeable gains; and for the purposes of this sub-paragraph—

(a) the distributable profits of a company for an accounting period shall be the aggregate of the following amounts, that is to say—

(i) the amount of any profits on which corporation tax falls finally to be borne, less the amount of that tax;

(ii) an amount equal to the qualifying distributions comprised in any franked investment income, other than franked investment income against which relief is given under section 242 or 243; and

(iii) an amount equal to any group income;

(b) the part of a company’s distributable profits attributable to chargeable gains shall be taken to be the amount of the chargeable gains on which corporation tax is finally borne less the amount of that tax; and

(c) the amount on which corporation tax falls finally to be borne (but not the amount of that tax) shall be computed as if section 242 did not include subsection (5) or (6) of that section (and as if section 243 did not apply section 242(5));

and for the purposes of sub-paragraph (a)(ii) above relief under section 242 or 243 shall be treated as having been given first against franked investment income which is not trading income and secondly, so far as it cannot be so given, against franked investment income which is trading income.

(2) For the purposes of this Chapter, the distributable investment income of a company for an accounting period shall be the amount of the distributable income, exclusive of the part attributable to estate or trading income, and less whichever is the smaller of—

(a) 10 per cent. of the estate or trading income; and

(b) £1,000 or, if the company is a trading company or a member of a trading group, £3,000 or (in either case) if the accounting period is of less than 12 months, a proportionately reduced amount.