What does section 1030 of the Corporation Tax Act 2010 do?

Section 1030 excludes distributions made in respect of share capital during a winding up from the definition of 'distribution' for corporation tax purposes. This means winding-up payments to shareholders are not subject to the corporation tax rules that normally apply to company distributions such as dividends, and are instead dealt with under the capital gains regime.

How are winding-up distributions taxed if they are not treated as distributions?

Because winding-up distributions fall outside the definition of a distribution under the Corporation Tax Acts, they are dealt with under the capital gains regime. Shareholders receiving a payment in a winding up are generally subject to capital gains treatment, comparing the proceeds received against the original cost of their shares to determine any chargeable gain or allowable loss.

Does section 1030 affect corporate shareholders differently?

Yes, for corporate shareholders the distinction is significant. Because winding-up distributions receive capital gains treatment rather than distribution treatment, reliefs such as the substantial shareholding exemption may potentially apply. This can result in a materially different tax outcome compared with receiving an equivalent amount as a dividend while the company is a going concern.

What is the difference between a winding-up distribution and a dividend under corporation tax law?

A dividend paid by a going concern is treated as a distribution under the Corporation Tax Acts and taxed accordingly under distribution rules. A winding-up distribution in respect of share capital is specifically excluded from the definition of distribution by section 1030 and is instead subject to capital gains rules, which may produce a different tax liability.

Corporation Tax Act 2010 section 1030

Distribution in respect of share capital in a winding up

Section 1030 excludes distributions made in respect of share capital during a winding up from the definition of "distribution" for corporation tax purposes.

When a company is being wound up, it may return capital to shareholders in respect of their shares.
Any such distribution made in respect of share capital during a winding up is specifically excluded from being treated as a "distribution" under the Corporation Tax Acts.
This means that winding-up distributions are not subject to the corporation tax rules that normally apply to company distributions such as dividends.
Instead, amounts received by shareholders in a winding up are generally treated under capital gains rules rather than distribution rules.

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