Revenue Note for Guidance

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Revenue Note for Guidance

622 Dividend stripping

Summary

This section is similar to the previous section except insofar as it deals with distributions which materially reduce the value of a holding in a company such that the shares or securities in the holding can be declared to be of negligible value and a loss claimed. This process is known as “dividend stripping”. This section applies section 621 in such cases, subject to certain adaptations.

Details

Definitions

(3) This section is construed together with section 621, which deals with depreciatory transactions within a group.

(4) A “dealing company”, in relation to a holding, is a company whose profit on the sale of a holding would be taken into account in computing it’s trading profits.

(5) A “holding in a company” is a holding of shares and securities which entitle the holder to receive distributions made by the company. Here holdings of different classes are considered to be different holdings, and holdings of shares and securities with different entitlements and obligations are considered to be different classes.

Application

(1) This section applies where a company (Company A) has a holding in another company (Company B) such that —

  • company A’s holding comprises at least 10 per cent or is an ingredient in a holding comprising 10 per cent of the same class in company B,
  • company A is not a dealing company in relation to the holding,
  • a distribution has been made to company A after 6th April, 1974 in relation to its holding,

and the distribution materially reduced the value of the holding.

(6) In examining one company’s holding in relation to another the following apply —

  • all a company’s holdings of the same class in another company constitute a single holding, and
  • one company’s holding and holdings held by connected persons are to be aggregated to determine whether the company has a 10 per cent holding.

Consequences of application of section

(2)(a) Where this section applies, then section 621 applies to any disposal of shares or securities in the holding whether by company A or a company to whom the holding has been transferred under section 617 (that is, with no loss or gain accruing) as if —

  • the distribution concerned was a depreciatory transaction, and
  • the companies concerned are members of a group, whether they are or not.

(2)(b) A distribution is not to be treated as a depreciatory transaction to the extent that it is taken into account in computing a chargeable gain or allowable loss accruing to the person making the final disposal.

Relevant Date: Finance Act 2019