Income Tax (Trading and Other Income) Act 2005 (c. 5)

Part 4 U.K. Savings and investment income

Chapter 3 U.K. Dividends etc. from UK resident companies [F1 and tax [F2 treated as paid] in respect of certain distributions]

Textual Amendments

F1 Words in Pt. 4 Ch. 3 heading substituted (with effect in accordance with s. 34(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 12 para. 2

F2 Words in Pt. 4 Ch. 3 heading substituted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 3

[F3 Other amounts treated as distributions U.K.

Textual Amendments

F3 S. 396A and cross-heading inserted (with effect in accordance with s. 19(10) of the amending Act) by Finance Act 2015 (c. 11), s. 19(2)

396A Arrangements offering a choice of capital or income return U.K.

(1) Subsection (2) applies if a person (“S”) has a choice either—

(a) to receive what would (ignoring this section) be a distribution of a company, or

(b) to receive from that company, or from a third party, anything else (“the alternative receipt”) which—

(i) is of the same or substantially the same value, and

(ii) (ignoring this section) would not be charged to income tax.

(2) If S chooses the alternative receipt—

(a) for income tax purposes it is treated as a distribution made to S by that company in the tax year in which it is received by S, and

[F4 (b) for the purposes of sections 1100 to 1103 of CTA 2010 (statements and returns of details of distributions) it is treated as a distribution that—

(i) is so made, and

(ii) is one to which section 1100 of CTA 2010 applies.]

(3) For the purposes of this section—

(a) it does not matter if the choice mentioned in subsection (1) is subject to any conditions being met or to the exercise of any power;

(b) where S is offered one thing subject to a right, however expressed, to choose another instead, S is to be regarded as making a choice if S abandons or fails to exercise such a right.

(4) If at any time a tax other than income tax (“the other tax”) is charged in relation to the alternative receipt, in order to avoid a double charge to tax in respect of that receipt, a person may make a claim for one or more consequential adjustments to be made in respect of the other tax.

(5) On a claim under subsection (4) an officer of Revenue and Customs must make such of the consequential adjustments claimed (if any) as are just and reasonable.

(6) Consequential adjustments may be made—

(a) in respect of any period,

(b) by way of an assessment, the modification of an assessment, the amendment of a claim, or otherwise, and

(c) despite any time limit imposed by or under an enactment.]

Textual Amendments

F4 S. 396A(2)(b) substituted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 9

[F5 396B Distributions in a winding up U.K.

(1) For the purposes of this Chapter, a distribution made to an individual in respect of share capital in the winding up of a UK resident company is a distribution of the company if—

(a) Conditions A to D are met, and

(b) the distribution is not excluded (see subsection (7)).

(2) Condition A is that, immediately before the winding up, the individual has at least a 5% interest in the company.

(3) Condition B is that the company—

(a) is a close company when it is wound up, or

(b) was a close company at any time in the period of two years ending with the start of the winding up.

(4) Condition C is that, at any time within the period of two years beginning with the date on which the distribution is made—

(a) the individual carries on a trade or activity which is the same as, or similar to, that carried on by the company or an effective 51% subsidiary of the company,

(b) the individual is a partner in a partnership which carries on such a trade or activity,

(c) the individual, or a person connected with him or her, is a participator in a company in which he or she has at least a 5% interest and which at that time—

(i) carries on such a trade or activity, or

(ii) is connected with a company which carries on such a trade or activity, or

(d) the individual is involved with the carrying on of such a trade or activity by a person connected with the individual.

(5) Condition D is that it is reasonable to assume, having regard to all the circumstances, that—

(a) the main purpose or one of the main purposes of the winding up is the avoidance or reduction of a charge to income tax, or

(b) the winding up forms part of arrangements the main purpose or one of the main purposes of which is the avoidance or reduction of a charge to income tax.

(6) The circumstances referred to in subsection (5) include in particular the fact that Condition C is met.

(7) A distribution to an individual is excluded if or to the extent that—

(a) the amount of the distribution does not exceed the amount that would result in no gain accruing for the purposes of capital gains tax, or

(b) the distribution is a distribution of irredeemable shares.

(8) In this section—

• “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable;

• “effective 51% subsidiary” has the meaning given by section 170(7) of TCGA 1992;

• “participator” has the meaning given by section 454 of CTA 2010.

(9) For the purposes of this section, an individual has at least a 5% interest in a company if—

(a) at least 5% of the ordinary share capital of the company is held by the individual, and

(b) at least 5% of the voting rights in the company are exercisable by the individual by virtue of that holding.

(10) For the purposes of subsection (9) if an individual holds any shares in a company jointly or in common with one or more other persons, he or she is to be treated as sole holder of so many of them as is proportionate to the value of his or her share (and as able to exercise voting rights by virtue of that holding).]

Textual Amendments

F5 S. 396B inserted (with effect in accordance with s. 35(3) of the amending Act) by Finance Act 2016 (c. 24), s. 35(1)