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Historically, non-qualifying distributions were distributions that did not qualify for a dividend tax credit. This was usually because they could be structured to be paid out of capital rather than out of profits.

Non-qualifying distributions have always been relatively rare in practice, as the legislation operates as low-level anti-avoidance to deter this type of distribution. If the taxpayer has received a non-qualifying distribution, it should have been identified as such on the dividend voucher received from the company.

Although the dividend tax credit was abolished with effect from 6 April 2016, and the term ‘non-qualifying distributions’ was repealed, this is still a helpful conceptual term to use when thinking about certain distributions that:

1. •

   fall to be treated as dividend income rather than as capital, and

2. •

   require income tax relief where they are later linked to a ‘qualifying’ distribution

Therefore, the guidance below still uses the term ‘non-qualifying distributions’ as a catch-all term for these types of distributions. However, the post-April 2016 legislation refers to these types of distributions as ‘CD distributions’, meaning that these are distributions