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SDLT & Dividends in specie

Posted on Tuesday, 4th June 2013 by
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There may be occasions where, rather than paying a dividend in cash, it is decided that a distribution of assets (often a property) would be preferable; this is called a ‘dividend in specie’.

So long as there is no obligation to pay a dividend, no SDLT liability will arise because there is no chargeable consideration. However, there are a couple of traps that are easy to fall into.

  1. If the shareholder is taking on debt that attached to the property being distributed, the assumption of debt is chargeable consideration and this results in the amount of the debt being chargeable to SDLT.
  2. More importantly, if the wording of the dividend is not clear, then SDLT could be payable on the entire amount.  The documentation approving the dividend must stipulate that this is a distribution of assets by way of a dividend in specie. It must not state that it is a cash value dividend which is to be settled by way of a transfer of assets, otherwise the subsequent transfer of the property is deemed to be in settlement of that cash obligation.

This is becoming more commonplace since the changes in rules as to what constitutes distributable reserves for a company.  Balancing the wording of the Board Minutes to demonstrate that the directors have considered the value of the property to be distributed to ensure they have adequate reserves, whilst making as little reference to this within the dividend declaration itself requires some very precise drafting!

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The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal advice and should not be relied upon as advice. Please see our website terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact one of our lawyers who will be happy and able to advise you on your own particular circumstances.

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