Q&As

A company pays its shareholders a dividend in specie of loan notes that were previously issued to the company. Is there a disposal of the loan notes at that point for capital gains tax purposes or is it deferred until they are redeemed?

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Published on LexisPSL on 22/04/2020

The following Tax Q&A provides comprehensive and up to date legal information covering:

  • A company pays its shareholders a dividend in specie of loan notes that were previously issued to the company. Is there a disposal of the loan notes at that point for capital gains tax purposes or is it deferred until they are redeemed?

We have assumed that the company is UK resident and that the dividend is not being paid between companies that are members of the same group for tax purposes.

When considering the tax treatment of this transaction from the perspective of the distributing company, the first step should be to consider whether it will fall within the rules on loan relationships, or those on corporation tax on chargeable gains.

A loan note held by a company will normally be a loan relationship for tax purposes. A disposal of a loan note would therefore normally be taxed under the loan relationship rules, as a result of which the tax treatment of the transaction would be expected to follow its accounting treatment.

It is specifically provided that credits and debi

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