CTM15200 - Distributions: general: dividends
ICTA88/S209 (2)(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 moneys 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. If the market value of the assets transferred is greater than that given amount, the excess will be a distribution under ICTA88/S209 (4) CTM15250.
Exceptionally, a company may satisfy a dividend by the transfer of assets without specifying any amount. In such cases you should take the amount of the dividend as the book value of the assets. Book value in this context means the valuation of the assets on the balance sheet of the company.
If the market value of the assets exceeds this book value, the excess is a distribution under ICTA88/S209 (4).
Illegal dividends
The Companies Act and the terms of a company's Articles lay down the rules for the payment of dividends.
Occasionally a company may claim that a dividend it has paid is illegal or ultra vires. This may result in a request for repayment of ACT paid where the dividend was paid prior to 6 April 1999 - see CTM20090.
