Section 401 | Relief: distribution repaying shares or security issued in earlier distribution

(1)Where a person is liable to income tax on a CD distribution, the person's liability to income tax on a subsequent non-CD distribution is reduced in accordance with this section if the non-CD distribution consists of a repayment of—

(a)the share capital, or

(b)the principal of the security,

which constituted the CD distribution.

(1A)The reduction is—

(a)the amount of income tax to which the person is liable on the CD distribution, or

(b)if lower, the amount of income tax to which the person is liable on the non-CD distribution.

(1B)For the purposes of calculating the amounts mentioned in subsection (1A)(a) and (b) assume—

(a)that the CD distribution is the lowest part of the person's dividend income in the tax year (“year 1”) in which it is made,

(b)that the non-CD distribution, if it is made in year 1, is the part of the person's dividend income in year 1 that is next lowest after the CD distribution, and

(c)that the non-CD distribution, if it is made after year 1, is the lowest part of the person's dividend income in the tax year in which it is made.

(6A)The reduction under this section is given effect at Step 6 of the calculation in section 23 of ITA 2007.

(7)In this section— “CD distribution” means a distribution which is a distribution for the purposes of the Corporation Tax Acts only because it falls within paragraph C or D in section 1000(1) of CTA 2010 (redeemable share capital or security issued as bonus in respect of shares in, or securities of, the company),“non-CD distribution” means a distribution which is not a CD distribution, and“security” has the meaning given in section 1117(1) of CTA 2010.