Can a dividend be capital in nature?

The First Tier Tax Tribunal has held that certain dividends paid by a Cayman company out of share premium were still income in nature because, following the payment of the dividends, the corpus of the shares were still intact. Because the corporate dividend exemption does not apply to dividends of a capital nature, this is also a current issue for the tax treatment of share redemptions and dividends paid out of distributable reserves created on the cancellation of share capital.

The Tribunal also held that a subscription for shares was not a "purchase" for the purposes of the repo rules.

See also:

Dividends paid from share premium - Mar 2012

First Nationwide - May 2011

First Nationwide and Dividends - Apr 2011

Capital Dividends - An Update - Mar 2010

Capital Dividends - An Update - Feb 2010

When is a dividend not a dividend? - Jan 2010

This article was originally produced in Tax Journal.

Sara Luder (partner)