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HMRC internal manual

Company Taxation Manual

Distributions: general: dividends and tax law

CTA10/S1000 (1) A

Most dividends paid by a company, including capital dividends, are distributions.

Exceptions include:

  • stock dividends (see CTM17000 onwards),
  • dividends paid by building societies (see CTM49470),
  • dividends paid by Industrial and Provident Societies (see CTM40500 onwards).

A capital dividend is a dividend paid out of capital profits. Note however, that a capital dividend is not the same thing as a capital distribution for chargeable gain purposes as defined at TCGA92/S122 (5)(b). For CG purposes a capital distribution is any distribution from a company in money or money’s worth except one which is income for IT purposes in the hands of the recipient.

Where a dividend is paid in cash the amount or value of the dividend is the sum paid. Not all dividends are paid in cash. Non-cash dividends may be described as ‘dividends in kind’ or ‘dividends in specie’. Such dividends will usually be declared in a given amount, to be satisfied by the transfer of assets. The dividend will be equal to that given amount. Commonly the given amount will be the book value, the value of the assets in the company’s balance sheet. If the market value of the assets transferred is greater than that given amount, the excess will be a distribution under CTM15250, which deals with distributions under CTA10/S1000 (1) B (distribution out of assets in respect of shares) and G (transfers of assets). Exceptionally, a company may satisfy a dividend by the transfer of assets without specifying any amount. In such cases the amount of the dividend is taken as the book value of the assets and similar treatment applies.

CTM15205 gives further guidance on dividends and distributions from the perspective of company law.