CTM15150 - Distributions: general: tax consequences
Source: gov.uk (2025-07-22)


CTA09/S3 (1)(b), ITTOIA05/S383, CTA09/S931A, ITTOIA05/S397 and CTA09/S1305

A distribution by a UK resident company has the following tax consequences for distributions made on or after 6 April 1999.

If a person other than another UK resident company receives the distribution, it is income chargeable to Income Tax under ITTOIA05/S383 for 2005-06 onwards (previously under ICTA88/S20). If the distribution is what was a 'qualifying distribution' the amount of the income is the amount of the distribution plus, prior to their repeal by FA16 (see explanation below), a tax credit. From 1999-2000, the tax credit fraction was one-ninth of the distribution. If the distribution was a non-qualifying distribution see CTM15950 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15950) for the tax treatment in relation to companies and SAIM5130 (http://home.active.hmrci/saimmanual/SAIM5130.htm) for individuals.

A distribution chargeable under ITTOIA05/S383 is not chargeable under any other provisions of the Income Tax Acts - see ITTOIA05/S366 (3) and ITEPA03/S716A.

More guidance on how persons other than companies are taxed on distributions can be found at SAIM5000 (https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim5000) onwards.

A distribution paid by a UK resident company or a non-resident company trading in the UK through a permanent establishment (see INTM264000 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm264000)onwards) is not deductible in computing its Corporation Tax (CT) profits, CTA09/S1305.

A distribution made by a UK resident company and received by a UK resident company is generally not included in the recipient company's CT profits. Similarly, such a distribution received by a non-UK resident company trading through a UK permanent establishment is not generally included in the CT profits of that permanent establishment. However, the way in which distributions received by companies are treated for tax purposes changed from 1 July 2009:
- Until 30 June 2009, ICTA88/S208 (and for a brief period CTA09/S1285) provided that CT was not chargeable on distributions from UK resident companies.
- From 1 July 2009, the way in which distributions from UK resident companies are taxed was aligned with the treatment of distributions from non-UK companies in CTA09/S931A. (Previously, distributions from non-UK resident companies were charged to CT as income from foreign possessions under ICTA88/S18, the old Case V Schedule D). CTA09/S931A begins by charging distributions from both UK and non-UK resident companies to CT but then provides an exemption in most cases. In practice, this means that most distributions - UK and non-UK company origin - are exempt from CT unless they feature in avoidance arrangements. See INTM651000 (http://home.active.hmrci/intmanual/INTM651000.htm).
CTA10/PART23 and distributions from non-UK incorporated companies

The CTA10/PART23 definition of distribution is used in determining whether a payment from a UK resident or non-UK resident falls within the scope of CTA09/S931A. Applying the legislation to companies incorporated in foreign territories can be problematic since the relevant company law may be materially different from UK company law. There may be no clear 'capital maintenance principle', for instance.

Following the judgment of the Court of Appeal in the case of HMRC v First Nationwide [2012] EWCA Civ 278, HMRC’s view is that if a dividend payment is a distribution permitted in accordance with the company law governing the foreign company then in the absence of any evidence calling into question the legal form of the payment it will be treated as a dividend for the purposes of CTA10/S1000 (1) A, and any other distribution out of the assets of the company made in respect of shares (or any other equity interest in the company, however described) will be a distribution under CTA10/S1000 (1) B except to the extent that (a) the distribution represents repayment of capital on the shares, or (b) is equal in amount or value to any new consideration received by the company for the distribution.

For foreign companies, it may be unclear what 'capital on the shares' comprises. The facts may vary, but HMRC would expect to treat as a distribution an amount that:
- is distributable in accordance with the relevant company law, and
- is not made on winding up or as part of a procedure under the relevant company law for reducing share capital,
and thus does not reduce 'the corpus of the asset' using the terminology of Rae v Lazard Investment Co Ltd (1963) 41TC1. See SAIM5120 (https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim5120).

See CTM15440 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15440) regarding the provision (CTA10/S1027A) that applies where a distribution is made out of a reserve arising from a reduction of share capital. CTM15400 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15400) deals with share premiums.

Qualifying and non-qualifying distributions

A qualifying distribution is any distribution within CTA10/S1000 or CTA10/S1064 (close companies - see CTM60500 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm60500) onwards) except the following distributions which are non-qualifying distributions:
- a distribution of bonus redeemable share capital, or
- a distribution of bonus securities
which in relation to the company making it are distributions by virtue only of CTA10/S1000 (1) C or D - see CTM15450 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15450) and CTM20075 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm20075).

Company A may make a distribution of bonus share capital or securities directly or indirectly to Company B. This may be a distribution by virtue only of CTA10/S1000 (1) C or D. If Company B later distributes that same share capital or securities this later distribution is also a non-qualifying distribution.

The amount of the non-qualifying distribution for the purposes of CTA10/S1000 (1) C or D is:
- for redeemable share capital, the excess of the nominal amount of the share capital together with any premium payable on redemption or in a winding-up or in any other circumstances over any new consideration received, and
- for any security, the excess of the principal amount secured including any premium payable at maturity or in a winding-up or in any other circumstances over any new consideration received.
FA16/S5 and SCH1 abolished from 6 April 2016 tax credits on distributions and repealed the definition of qualifying and non-qualifying distributions at CTA10/S1136, substituting the terms 'non-CD distributions' and 'CD distributions', reflecting the paragraphs of CTA10/S1000 (1).