Taxes Consolidation Act 1997 Schedule 22 paragraph 2

Exception from the dividend stripping rules

Paragraph 2 of Schedule 22 provides an exception to the dividend stripping rules, allowing a dividend paid within one year of the acquisition date to be treated as paid out of post-acquisition profits where the dividend rate is not substantially greater than the normal rate for those shares.

• A dividend is not regarded as paid out of pre-acquisition profits if it became payable within one year of the relevant date and the annual dividend rate on those shares is not substantially greater than the rate over the previous three years.
• Where the shares were acquired through a public issue or placing, the test is whether the dividend yield on cost is not substantially greater than the yield obtainable on comparable quoted shares.
• In assessing whether the dividend rate is normal, the Appeal Commissioners must have regard to all dividends paid, any share issues made in the relevant periods, and — where the shares did not exist three years before the relevant date — the dividend history of any predecessor shares surrendered or exchanged for them.
• The Appeal Commissioners may take averages and make such adjustments as they consider necessary to ensure a fair comparison between the periods in question.