Taxation of Chargeable Gains Act 1992 section 177

Dividend stripping

Section 177 targets dividend stripping arrangements by extending the depreciatory transaction rules to restrict capital losses where a company with a significant shareholding in another company receives distributions that materially reduce the value of that shareholding.

• Where a company holds at least 10% of a class of shares in another company (counting holdings of connected persons), is not a dealing company, and receives a distribution that materially reduces the holding's value, the depreciatory transaction rules apply to restrict any capital loss on a subsequent disposal
• The distribution is treated as a depreciatory transaction under section 176, and the companies are treated as if they were in the same group even if they are not, so that losses attributable to the distribution out of pre-acquisition profits are restricted
• The loss restriction does not apply to the extent that the distribution has already been brought into account for corporation tax on chargeable gains purposes in computing a chargeable gain or allowable loss on the ultimate disposal
• Different classes of shares or securities are treated as separate holdings, a dealing company (one that would include a sale profit in trading profits) is excluded from these rules, and the 10% threshold is tested by aggregating holdings of connected persons