Taxes Consolidation Act 1997 Schedule 22 paragraph 1

Dividend stripping

Paragraph 1 of Schedule 22 sets out the rules for determining when a dividend is regarded as paid out of profits accumulated before the date on which shares were acquired (the "relevant date"), for the purposes of the dividend stripping provisions in section 752.

• A dividend is treated as paid wholly from pre-acquisition profits if it is declared for a period ending before the relevant date, if there are no company profits in the period from the relevant date to the payment date, or if no profits are available for that dividend after setting aside amounts due on other share classes.
• Where post-acquisition profits exist but are insufficient to cover the full net dividend on the relevant class of shares, the dividend is treated as paid from pre-acquisition profits only to the extent that the total dividend exceeds those available profits.
• A dividend declared for a period that straddles the relevant date is split into two notional dividends — one for the pre-acquisition portion and one for the post-acquisition portion — allocated in proportion to the length of each part of the period.
• These rules support the dividend stripping provisions in section 752, which prevent a tax credit being claimed on dividends paid from profits that had already accumulated before the shares were acquired by a security dealer, pension fund, or charity.