Redrawing the line: modernising the UK taxation of distributions

In June 2026, the UK tax authority (HMRC) published a consultation on the tax treatment of distributions and repayments of capital from companies. The wide-ranging proposals seek to redefine the circumstances in which a return of value to an individual shareholder should be treated as a capital return rather than income. As a general theme, HMRC are proposing to take a more mechanical approach in order to reduce their reliance on anti-avoidance legislation such as the Transactions in Securities rules. Although the proposals seem to be largely focused on avoidance in the owner managed business space, they could have significant consequences for larger businesses and listed companies.

In the article available at the link below, Jill Gatehouse, Emily Szasz, Joe Williams and Tom Gardner from our London tax team discuss the detail of the proposals, which include an overhaul of the tax treatment of returns of value from non-UK companies, the extension of the loans to participators regime to non-UK companies, and the introduction of a freezing rule to switch off the ability of groups to step up ‘good’ tax capital through the interposition of a new holding company. The article also addresses the consequences of the freezing rule on demergers.

This article was originally published in Tax Journal on 18 September 2026.