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6.6.4. Distributions Derived from Transactions not Designed to Reduce Tax

The exempt class given by Section 931H of CTA2009 was originally available only to dividends and not to other types of distribution. This section was modified by F(No.3)A 10, and now applies to dividends and other types of distributions.

S931H divides profits available for distribution into “relevant profits” and other profits. Relevant profits are those that do not result from transactions designed to reduce UK tax.  If the distribution does not fall into any other exempt class other than this class, it is exempt only to the extent that it is sourced from relevant profits.  If the company has relevant and “bad” profits available for distribution, distributions relying solely on S931H is regarded as being paid out of bad profits in priority to relevant profits.  In the event that the bad profits amount is less than the distribution, it will be treated as two separate distributions, and one of which will then be regarded as paid out of bad profits and not exempt.  

Distributions which are exempt under other classes (e.g. non-redeemable ordinary shares) are as far as possible, treated as paid out of relevant profits and will not deplete the pool of profits other than relevant profits.