Taxes Consolidation Act 1997 section 752

Purchases of shares by financial concerns and persons exempted from tax

Section 752 is the main anti-avoidance provision designed to prevent the avoidance of tax through the dividend-stripping device, affecting both share dealers and tax-exempt bodies such as charities and pension funds.

• Where a share dealer or tax-exempt body acquires 10% or more of a class of shares and receives a dividend within 10 years of acquisition, the net dividend, to the extent paid from pre-acquisition profits, is treated as a taxable trading receipt (for dealers) or loses its tax exemption (for exempt bodies).
• The 10% threshold is tested by aggregating the person's own shares with shares held by dealing concerns under common control, and shares acquired by dealers or exempt bodies acting in concert.
• When shares from a batch acquired at different dates are sold, the earliest acquired shares are treated as sold first (the FIFO rule), and shares forming part of trading stock when a trade commences are treated as acquired at that date.
• Schedule 22 provides the detailed rules for determining whether and to what extent a dividend is paid out of profits accumulated before a particular date.