TCGA 1992 s.122 – Distribution which is not a new holding within Chapter II

(1)Where a person receives or becomes entitled to receive in respect of shares in a company any capital distribution from the company (other than a new holding as defined in section 126) he shall be treated as if he had in consideration of that capital distribution disposed of an interest in the shares.

[^F691 (1A)Subsection (1) is subject to the provisions of section 140A(1D) and section 140E(7).^F691]

(2)^F692^,^F692If ... the amount distributed is small, as compared with the value of the shares in respect of which it is distributed, ...—

(a)the occasion of the capital distribution shall not be treated for the purposes of this Act as a disposal of the asset, and

(b)the amount distributed shall be deducted from any expenditure allowable under this Act as a deduction in computing a gain or loss on the disposal of the shares by the person receiving or becoming entitled to receive the distribution of capital.

^F693 (3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)Where the allowable expenditure is less than the amount distributed (or is nil)—

(a)[^F694 subsection (2)^F694] above shall not apply, and

(b)if the recipient so elects (and there is any allowable expenditure)—

(i)the amount distributed shall be reduced by the amount of the allowable expenditure, and

(ii)none of that expenditure shall be allowable as a deduction in computing a gain accruing on the occasion of the capital distribution, or on any subsequent occasion.

In this subsection “allowable expenditure” means the expenditure which immediately before the occasion of the capital distribution was attributable to the shares under paragraphs (a) and (b) of section 38(1).

(5)In this section—

(a) the “amount distributed” means the amount or value of the capital distribution,

(b) “capital distribution” means any distribution from a company, including a distribution in the course of dissolving or winding up the company, in money or money’s worth except a distribution which in the hands of the recipient constitutes income for the purposes of income tax.

[^F695 (5A)The reference in subsection (5)(b) to a distribution in the course of dissolving a company includes a reference to a distribution to which section 1030A(3) of CTA 2010 (distributions prior to dissolution of company) applies.^F695]

[^F696 (6)The reference in subsection (5)(b) to a distribution which in the hands of the recipient constitutes income for the purposes of income tax includes, where the recipient is a company, a distribution to which the charge to corporation tax on income under Part 9A of CTA 2009 (company distributions) would apply were the distribution not exempt for the purposes of that Part.^F696]

Definitions used in section 122 12

shares: “shares” includes stock;
Defined in s.288(1) · see it in the full Act; (5) In this paragraph, except in paragraphs (a) to (c) of sub-paragraph (6), “shares” includes an interest in shares.
Defined in Sch.7AC para.10(5) · see it in the full Act; (b) “shares” includes securities,
Defined in Sch.7 para.4(2) · see it in the full Act
the shares: (5) In sub-paragraphs (3) and (4) and in the following provisions of this Schedule references to “the shares” are to the shares referred to in sub-paragraph (1)(a).
Defined in Sch.7ZB para.1(5) · see it in the full Act; (a) references to “the shares” shall be construed in accordance with sub-paragraph (1) above, and
Defined in Sch.5B para.13(12) · see it in the full Act
company: “company” includes any body corporate or unincorporated association but does not include a partnership, and shall be construed in accordance with section 99 ;
Defined in s.288(1) · see it in the full Act; (5) In this paragraph “company” and “group” shall be construed in accordance with section 170(2) to (9).
Defined in Sch.2 para.5(5) · see it in the full Act
capital distribution: In this sub-paragraph “capital distribution” has the same meaning as in section 122.
Defined in Sch.5AA para.4(4) · see it in the full Act
the new holding: and in paragraph (b) above “the original shares” and “the new holding” have the same meaning as they have for the purposes of sections 127 to 130.
Defined in s.116(1) · see it in the full Act
new holding: (5) In sub-paragraph (2) above “new holding” shall be construed in accordance with sections 126, 127, 135 and 136.
Defined in Sch.5B para.9(5) · see it in the full Act; (4) In sub-paragraph (1) “original shares” and “new holding” shall be construed in accordance with sections 126, 127, 135 and 136.
Defined in Sch.7AC para.14(4) · see it in the full Act
assets: (a) the reference to “assets” were a reference to “property”, and
Defined in Sch.4ZA para.22(2) · see it in the full Act
asset: In this sub-paragraph “asset” includes part of an asset.
Defined in Sch.8B para.6(1) · see it in the full Act
income: (6) Sub-paragraphs (4) and (5) above apply for the purposes of paragraph (b) of sub-paragraph (1) above as they apply for the purposes of paragraph (a), reading “income” for “property".
Defined in Sch.5 para.2(6) · see it in the full Act
tax: and for the purposes of this definition “tax” means capital gains tax, corporation tax or income tax.
Defined in s.16A(2) · see it in the full Act
CTA 2010: “CTA 2010” means the Corporation Tax Act 2010 ;
Defined in s.288(1) · see it in the full Act
CTA 2009: “CTA 2009” means the Corporation Tax Act 2009 ;
Defined in s.288(1) · see it in the full Act

Cases considering section 122 3

Alexander Beard v The Commissioners for HMRC

[2025] EWCA Civ 385 · 2 May 2025Limits

The Court explained that the capital-distribution charge is relevant only after determining whether the distribution is income for income-tax purposes (see paras [15]-[16]). The provision was described as charging capital distributions by treating the recipient as disposing of an interest in the shares; its operation was secondary to the income-tax analysis (see paras [15]-[16]). The provision excludes a distribution which constitutes income for income-tax purposes from the definition of capital distribution. The Court therefore treated the income question as logically prior (see paras [15]-[16]).

HM Revenue & Customs v Smallwood

[2007] EWCA Civ 462 · 17 May 2007Defines

The provision was used with section 99 to explain the treatment of capital distributions from a unit trust as deemed disposals for capital gains tax purposes. (see paras [19]; [56]) The provision deemed receipt of a capital distribution to be a disposal of an interest in the units, establishing the disposal on which the claimed losses were computed. (see paras [19]; [56]; [59]) The provision supplied the definition of capital distribution used to determine that the distributions were within the deemed-disposal rule. (see para [56])

Revenue & Customs v Smallwood

[2006] EWHC 1653 (Ch) · 6 July 2006

Applies section 122(1), through the section 99 fiction, so that distributions from the scheme are treated as disposals of interests in the notional shares (see paras [2], [17], [36]).

What each judgment says about section 122 is in the case-law panel in the full Act.

Amendments and notes

12 notes from legislation.gov.uk

Amendments

F691S. 122(1A) inserted (with effect in accordance with reg. 3(2) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 2 para. 4 (with S.I. 2008/1579, reg. 4(1))
F692Words in s. 122(2) repealed (with effect in accordance with s. 134(2) of the amending Act) by Finance Act 1996 (c. 8), Sch. 20 para. 52(1), Sch. 41 Pt. V(10)
F693S. 122(3) repealed (with effect in accordance with s. 134(2) of the amending Act) by Finance Act 1996 (c. 8), Sch. 20 para. 52(2), Sch. 41 Pt. V(10)
F694Words in s. 122(4)(a) substituted (with effect in accordance with s. 134(2) of the amending Act) by Finance Act 1996 (c. 8), Sch. 20 para. 52(3)
F695S. 122(5A) inserted (with effect in accordance with art. 18 of the amending S.I.) by The Enactment of Extra-Statutory Concessions Order 2012 (S.I. 2012/266), arts. 1, 17
F696S. 122(6) inserted (with effect in accordance with Sch. 3 paras. 5, 7 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 3 para. 4(3) (with Sch. 3 para. 6(4))

Modifications

C199S. 122 modified (27.7.1992) by 1993 c. 37, s. 12, Sch. 2 Pt. I para. 16(2)(b)
C200S. 122 excluded by Finance Act 1996 (c. 8), Sch. 9 para. 12D(5) (as inserted (with effect in accordance with reg. 3(1) of the amending S.I.) by S.I. 2007/3186, reg. 1(2), Sch. 1 para 16 (with S.I. 2008/1579, reg. 4(1)))
C201S. 122 excluded by Finance Act 1996 (c. 8), Sch. 9 para. 12B(5) (as substituted (with effect in accordance with reg. 3(2) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 2 para. 8 (with S.I. 2008/1579, reg. 4(1)))
C202S. 122 excluded by Finance Act 2002 (c. 23), Sch. 26 para. 30D(5) (as inserted (with effect in accordance with reg. 3(1) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 1 para. 19 (with S.I. 2008/1579, reg. 4(1)))
C203S. 122 excluded by Finance Act 2002 (c. 23), Sch. 26 para. 30B(5) (as substituted (with effect in accordance with reg. 3(2) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 2 para. 10 (with S.I. 2008/1579, reg. 4(1)))
C204S. 122 excluded by Finance Act 2002 (c. 23), Sch. 29 para. 85A(6) (as substituted (with effect in accordance with reg. 3(2) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 2 para. 11 (with S.I. 2008/1579, reg. 4(1)))