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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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Distributions: general: out of assets in respect of shares

CTA10/S1000 (1) B applies to ‘any other distribution out of the assets of the company in respect of shares in the company’.

For distributions made after 17 July 2012 CTA10/S1000 (1) B applies to a transfer of assets before CTA10/S1000 (1) G - see FA12/S33. In particular, paragraph B should be used where an asset has been transferred to an associate of a member rather than to a member,

In some circumstances CTA10/S1000 (1) B does not apply to a transfer of assets between companies (see CTM15300).

CTA10/S1000 (1) B extends the meaning of distribution to any other distribution out of assets of the company in respect of shares in the company, except however much (if any) of the distribution represents repayment of capital on the shares, or is (when it is made) equal in amount or value to any new consideration received by the company for the distribution.

For definition of the various terms see CTM15130.

A company might contend that a transfer is not ‘in respect of shares’ if the transfer is to someone who has never been a member of the company. CTA10/S1113 (3) and (4) provides that something is done in respect of a share if:

  • it is done to a person as being, or having been, the holder of a share, or
  • it is done in pursuance of a right granted or offer made in respect of a share.

The Special Commissioners in the Noved case (SC3081/2005) held that the words of ICTA88/S254 (12) (now CTA10/S1113(3) and (4)) impose sufficient but not necessary conditions for something to be treated as done in respect of shares.

Thus the exercise by a shareholder of a right to require a payment to a third party, and the subsequent payment out of the assets of the company to the third party, would be a payment in respect of a share even though it is not made to the holder.

In the Noved case the Special Commissioners also decided that:

  • the transfer of assets at undervalue is capable of falling within both ICTA88/S209 (2) (b) and (4), (now CTA10/S1000 (1) B & G)
  • cash transfers are within both ICTA88/S209 (2) (b) and (4), (now CTA10/S1000(1) B and G)
  • a gift by a trading company to a charity by which it is owned is not necessarily a distribution within ICTA88/S209(2) (b),
  • ICTA88/S209 (2) (b) covers the following where they take place in respect of shares:
  1. a transfer of assets to a shareholder for a consideration in assets of value less than the value of the assets transferred to the company,
  2. any transfer of assets to a shareholder for a cash consideration less than their value,
  3. any transfer of assets to a company by a shareholder for a cash consideration paid by the company of more than the value of the assets moving to the company.

Note, however, that from 17 July 2012 the overlap between the scope of CTA10/S1000 (1) B and G was removed by FA12/S33, (seeCTM15250.)

In some cases a company may transfer an asset to an associate of a member. In these circumstances it may be possible to establish that the transfer derived from the shareholding and was made in respect of the shares of the member.

Where the company cannot show a payment was made for some other reason it is likely the payment was made in respect of shares.

Refer any challenge to this argument in a case where the company made the payment or transfer to an associate of a member to CTISA (Technical) - see ‘Technical Help’ on the left bar.

Similarly refer:

  • any transfer of value from a company in circumstances such that the distributions legislation does not appear to apply, and
  • the transfer of value is not taxed as employment income.

In appropriate circumstances you should also notify PT Operations (see CTM15570).