Corporation Tax Act 2010 section 1038

Section 1037: effect of entitlement to profits

Section 1038 defines when a seller's interest as a shareholder is not considered to be substantially reduced, by reference to the seller's entitlement to the company's distributable profits before and after the share purchase.

• A seller's interest is not substantially reduced if, immediately after the purchase, the seller's share of the company's distributable profits exceeds 75% of what it was immediately before the purchase.
• Where a person receives periodic distributions at fixed rates or amounts, they are treated as entitled to the amount (or maximum amount) they would receive for a full year.
• Distributable profits are calculated using the Companies Act 2006 definition, but notionally increased by £100 for every company and, where fixed-rate distributions are payable, by a further amount sufficient to cover a year's worth of those distributions.
• If the total sums payable by the company on the purchase and any simultaneous redemption, repayment or purchase of other shares exceed the distributable profits immediately before the purchase, those profits are treated as further increased by the amount of the excess.