Taxes Consolidation Act 1997 section 817

Schemes to avoid liability to tax under Schedule F

Section 817 counteracts schemes or arrangements by close companies designed to extract value for shareholders as capital receipts rather than as dividends chargeable to income tax under Schedule F.

• Where a shareholder disposes of shares in a close company without significantly reducing their interest in the company's trade or business, the disposal proceeds (or the excess over new consideration) are treated as an income distribution by the company.
• The amount treated as a distribution cannot exceed the capital receipts actually received by the shareholder on the disposal or under the wider scheme or arrangement.
• Extensive deeming rules determine whether a shareholder's interest has been "significantly reduced", including attribution of connected persons' interests, look-through for holding company structures, and anti-avoidance rules targeting contrived trust arrangements.
• The section does not apply where the disposal was made for bona fide commercial reasons and was not part of a scheme or arrangement aimed at tax avoidance.