Corporation Tax Act 2010 section 1028

Certain payments connected with exempt distributions

Section 1028 prevents certain chargeable payments made after a demerger from being treated as repayments of share capital, which could otherwise trigger unfavourable tax consequences under the bonus issue rules.

• A chargeable payment made within five years after an exempt distribution cannot be treated as a repayment of share capital
• This rule overrides the bonus issue provisions in sections 1022 and 1023, which would otherwise apply when share capital is repaid and later followed by a bonus issue
• Chargeable payments arising in connection with demergers are instead subject to their own tax charge under the demerger rules
• The terms "chargeable payment" and "exempt distribution" are specifically defined within the demerger provisions of the Act