Section 401 Relief: distribution repaying shares or security issued in earlier distributionF5

United Kingdom

F1(1)

Where a person is liable to income tax on a CD distribution, the person's liability to income tax on a subsequent non-CD distribution is reduced in accordance with this section if the non-CD distribution consists of a repayment of—

(a)

the share capital, or

(b)

the principal of the security,

which constituted the CD distribution.

(1A)

The reduction is—

(a)

the amount of income tax to which the person is liable on the CD distribution, or

(b)

if lower, the amount of income tax to which the person is liable on the non-CD distribution.

(1B)

For the purposes of calculating the amounts mentioned in subsection (1A)(a) and (b) assume—

(a)

that the CD distribution is the lowest part of the person's dividend income in the tax year (“year 1”) in which it is made,

(b)

that the non-CD distribution, if it is made in year 1, is the part of the person's dividend income in year 1 that is next lowest after the CD distribution, and

(c)

that the non-CD distribution, if it is made after year 1, is the lowest part of the person's dividend income in the tax year in which it is made.

F2(6A)

The reduction under this section is given effect at Step 6 of the calculation in section 23 of ITA 2007.

(7)

In this sectionF3—

“CD distribution” means a distribution which is a distribution for the purposes of the Corporation Tax Acts only because it falls within paragraph C or D in section 1000(1) of CTA 2010 (redeemable share capital or security issued as bonus in respect of shares in, or securities of, the company),

“non-CD distribution” means a distribution which is not a CD distribution, and

“security” has the meaning given in F4section 1117(1) of CTA 2010.

Annotations

Textual amendments

F1: S. 401(1)-(1B) substituted for s. 401(1)-(6) (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 12(2)
F2: S. 401(6A) inserted (6.4.2007 with effect as stated in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), ss. 1027, 1034, Sch. 1 para. 518 (with transitional provisions and savings in Sch. 2)
F3: Words in s. 401(7) substituted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 12(3)
F4: Words in s. 401(7) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 455 (with Sch. 2)
F5: Words in s. 401 heading substituted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 12(4)

Notes on Chapter 3

Textual amendments

F1: Words in Pt. 4 Ch. 3 heading substituted (with effect in accordance with s. 34(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 12 para. 2
F2: Words in Pt. 4 Ch. 3 heading substituted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 3

Notes on ... Payment and deduction of tax

Textual amendments

F1: Words in s. 397 cross-heading omitted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by virtue of Finance Act 2016 (c. 24), Sch. 1 para. 10