A Dividend in Specie is a dividend which is satisfied in assets as opposed to cash. You may wish to transfer property, equipment or other assets to your shareholders instead of, or, as well as a cash asset. There are various aspects that your board of Directors will need to consider. Here are a few common ones:-
1. Will I have to pay Stamp Duty Land Tax (SDLT)?
The main query that arises in relation to a Dividend in Specie is whether SDLT is payable on the transfer of the property. This depends on whether there is chargeable consideration, and this will largely depend on your individual circumstances.
If the consideration is for money or money’s worth then HMRC will expect SDLT to be paid on the transfer. An example of money’s worth is when you transfer property to satisfy or release a debt that the shareholder has over the company. Alternatively your shareholder may agree to take on an existing mortgage over the asset, these are examples of chargeable consideration and SDLT is payable.
Where there is a transfer of assets between group companies, the transferee company should be able to rely upon relief under the Finance Act.
2. Will I have to pay VAT?
When a company disposes of assets, whether or not for consideration, then that will be a supply of goods for the purposes of VAT. There are some exemptions, for example if there is a transfer of a going concern.
So a Dividend in Specie can fall to be a supply of goods for VAT purposes. The next step is to establish the VAT status and whether it falls outside the scope of VAT. If you are transferring land then it is most likely an exempt supply under schedule 9 and therefore no VAT is payable – however there are some exceptions including disposals relating to holiday homes, camping, parking, and rights to take game or fish.
Finally, has the property ever been elected previously as chargeable to VAT? e.g. has there been a taxed lease? If so, then the transfer is likely to be chargeable to VAT.
3. Deciding to declare a Dividend in Specie
Some key points to remember:-
• Check your Articles to ensure that the company has the authority to pay an interim dividend in specie (if applicable). If you are not sure then contact one of our Corporate Law specialists.
• When your board resolves to declare a dividend in specie, be wary of the wording as this will depend on what method your articles allow (if any).
• Dividends in Specie are best declared as interim dividends (where your articles allow) as the Directors have much more flexibility relating to an Interim Dividend than a Final Dividend.
• Check that there are sufficient distributable reserves in the company to declare the Dividend in Specie.
If you have any questions about how this decision may affect your business please contact any member of our Corporate and Commercial law team.