Accountants have widely condemned an unexpected Government clampdown on share buy-backs and special dividend schemes to exempt tax-payers.
The Inland Revenue announced on Tuesday that tax-exempt investors, including pension funds, could no longer claim tax credits under schemes designed to distribute profits to shareholders.
Price Waterhouse tax partner John Whiting said: ‘What is surprising and unfair is the timing. It affects distributions on or after Tuesday. Companies such as Reuters and SHV and Calor made announcements this week on the understanding of the law as it previously stood.’
KPMG partner Robert Turnbull added: ‘Special dividends not connected to the alteration of share capital or take-overs will not be affected.
This will affect investment decisions of tax-exempt fund managers. Now it has created a level playing field for investments, will funds continue to target shares that are expected to provide these sort of tax benefits?’
Ernst & Young partner Roger Muray said: ‘The measures should affect those paying special dividends connected with reorganisation, take-over situations where bidders offer to pay dividends out of the target companies’ reserves, and share buy-backs where companies buy shares back from shareholders at more than the issue price, effectively creating a dividend for tax purposes.’