Taxes Consolidation Act 1997 section 622

Dividend stripping

Section 622 deals with dividend stripping, where distributions materially reduce the value of a company holding so that the shares can be declared of negligible value and a capital loss claimed, and treats such distributions as depreciatory transactions under section 621.

• Where a non-dealing company holds at least 10 per cent of a class of shares in another company and a distribution materially reduces the value of that holding, the distribution is treated as a depreciatory transaction under section 621.
• The rule applies to any disposal of shares from the holding, whether by the original company or by a transferee under a no-gain/no-loss transfer, and the companies are treated as group members even if they are not.
• A distribution is not treated as a depreciatory transaction to the extent it is already taken into account in computing a chargeable gain or allowable loss on the ultimate disposal.
• A company's own holding of a class can be aggregated with holdings of connected persons to meet the 10 per cent threshold, and holdings of different classes are treated as separate holdings.