Corporation Tax Act 2010 section 1027

Cap on amount of distributions affected by section 1026

Section 1027 places a cap on the total amount of distributions that can be reclassified as distributions (rather than repayments of share capital) under the bonus issue rules in section 1026.

• The reclassification of distributions under section 1026 only applies up to a defined cap, beyond which distributions revert to being treated as repayments of share capital.
• The cap is calculated as the total amount paid up on the bonus shares that was not funded by new consideration and has not already been treated as a distribution.
• An "affected distribution" is the portion of any distribution on bonus shares that would normally be a repayment of share capital but is prevented from being so by section 1026.
• Cumulative affected distributions made since the bonus share issue are measured against the cap, and once the cap is reached, section 1026 ceases to apply to any further distributions.