Distributions in Specie in the UK

In UK company law and taxation, a “distribution in specie” refers to the transfer of a non‑cash asset from a company to its shareholders.

Instead of paying a dividend in cash, the company distributes an asset such as property, shares in another company, or equipment. This mechanism can be useful for restructuring, tax planning, or returning surplus assets to owners.

Legal Framework

Under section 845 of the Companies Act 2006, a distribution in specie occurs when a company makes a distribution of an identified non‑cash asset without first converting it into cash. Key points include:

• The asset must be clearly identified and valued.
• The distribution must be lawful – it can only be made out of distributable reserves (profits otherwise available for distribution to shareholders by way of dividend).

Directors must ensure the company remains solvent after the distribution.

Common Examples

Typical situations where a distribution in specie may be used include:

• Group restructuring– transferring assets between group companies.
• Property transfers– distributing land and buildings to shareholders.
• Winding up– returning assets to shareholders as part of a liquidation process.

Valuation and Accounting

The asset concerned must be valued at the date of distribution. This valuation is important for:

• Determining whether sufficient distributable reserves exist.
• Calculating any tax liabilities.
• Recording the transaction in the company’s accounts.

Tax Implications

From a corporation tax perspective:

• The company may be treated as disposing of the asset at market value, potentially triggering a capital gain or loss.

For shareholders:

• Individuals may be subject to income tax on the value of the distribution.
• In some cases, capital gains tax treatment may apply. For example, on the transfer of assets in a liquidation process.

Special rules apply for connected parties and group companies, and professional legal and tax advice is strongly recommended.

Practical Considerations

The essential elements requiring consideration include:

• Board approval: Directors should pass a resolution approving the distribution.
• Documentation: Maintain clear records, including valuation reports and minutes.
• Solvency: Ensure that the distribution does not breach creditor protection rules.
• Tax clearance: Obtaining advance clearance for the proposals from HMRC.

Conclusion

Distributions in specie can be a flexible tool for UK companies, allowing the transfer of assets without a cash transaction. However, they require careful planning to comply with company law, ensure accurate valuation, and manage tax consequences. Directors should seek both legal and tax advice before proceeding.

How Can We Help?

The Corporate and Commercial team at Wilson Browne Solicitors is ideally placed to advise on all legal aspects of preparing and finalising the documentation required to safely implement a distribution in species. For a confidential and no obligation initial discussion about how we may be able to help, please contact the Corporate and Commercial team at 0800 088 6004.