Does a dividend in specie from a UK company have to be reported on Form 5471?

Yes. A US person who is a Category 4 or Category 5 filer for the UK company reports the distribution on Schedule R, showing its description, date, amount in the company's functional currency and the earnings and profits portion. For noncash distributions the instructions require an attached statement showing both the tax bases and fair market values. The distribution also flows through Schedule J line 9 and Schedule P.

Is a UK dividend in specie taxed at book value or market value?

For tax, market value. HMRC guidance explains that a dividend in specie is often declared at book value, but any excess of market value over the declared amount is itself a distribution, so an individual shareholder is taxed on the full market value. In the US, section 301 measures the distribution at fair market value on the distribution date, regardless of the figure in the UK accounts.

Does the UK company pay tax when it distributes an asset instead of cash?

Usually yes on both sides. For UK corporation tax, TCGA 1992 section 17 treats a distribution of assets to shareholders as a disposal at market value, so any chargeable gain is taxed. For US purposes, section 311(b) treats the controlled foreign corporation as selling the asset at fair market value, and the gain increases its earnings and profits and may be subpart F or tested income.

What is my US tax basis in property received as a dividend in specie?

Under section 301(d), your US basis in the distributed property equals its fair market value on the distribution date, translated into dollars at the spot rate on that date. Your UK base cost is broadly the market value in sterling. Because the two figures are in different currencies, a later sale can produce a UK gain and a US loss, or the reverse, and each needs its own computation.

Which filer category do I check if I own 100% of a UK company?

A US person who owns all of a UK company is usually both a Category 4 and a Category 5a filer. The Form 5471 instructions say that where you meet both, you check only the Category 4 box and leave Category 5a blank. You still complete every schedule that applies, which for a sole owner includes Schedules J, M, P and R among others.

I missed Form 5471 in the year my UK company distributed an asset. What now?

The section 6038 penalty starts at $10,000 per company per year, and the assessment period for that year generally stays open until the form is filed. If you live outside the US and the failure was non-willful, the Streamlined Foreign Offshore Procedures cover three years of returns with Forms 5471 and six years of FBARs, and the IRS states eligible filers avoid information return penalties.

Form 5471: UK Dividend in Specie Reporting Guide

When a UK company you control pays a dividend in specie, Form 5471 has to report the distribution at the fair market value of the asset, not the figure in the company's accounts, and the company itself is treated for US purposes as if it had sold the asset at that value. A dividend in specie is a distribution of an asset, such as a flat, a portfolio of investments or the shares of a subsidiary, made to shareholders instead of cash. For a US citizen or green card holder who owns a UK owner-managed or investment company, that one board resolution creates a UK corporation tax charge, a UK dividend charge, a US gain inside the controlled foreign corporation, a US dividend or previously taxed earnings distribution, and a new US and UK tax basis in the asset you now hold personally.

In the returns we prepare for high-net-worth US shareholders of UK companies, in-specie distributions are among the transactions most often reported wrongly, usually because the UK accounts record the dividend at book value and the US preparer copies that number across. This guide walks through the UK side, the US side, every Form 5471 schedule the distribution touches, currency translation, valuation evidence, what happens when you later sell the asset, and how to repair earlier years if a distribution was never reported.

What is a dividend in specie under UK company law and HMRC rules?

Under UK company law a dividend in specie is still a distribution, so the company must have distributable profits available to cover it. Section 845 of the Companies Act 2006, at https://www.legislation.gov.uk/ukpga/2006/46/section/845, sets out how the amount of a distribution in kind is measured for company law purposes by reference to the book value of the asset, which is why directors commonly declare the dividend at the asset's carrying value in the balance sheet. The company law amount matters for the legality of the dividend, but it is not the tax amount on either side of the Atlantic.

HMRC's Company Taxation Manual at https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15200 explains that dividends in specie are usually declared in a given amount to be satisfied by a transfer of assets, and that the given amount is commonly the book value. Where the market value of the asset exceeds that declared amount, the excess is itself a distribution under CTA 2010 section 1000(1)G, as described at https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15250, which measures a transfer of assets to members as the market value of the asset less the market value of any new consideration given. The practical result for an individual shareholder is that the total UK distribution equals the market value of what they received.

How does the UK tax the company and the shareholder?

At company level, a distribution of assets to shareholders is a disposal otherwise than by way of a bargain at arm's length. HMRC's Capital Gains Manual at https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14530 confirms that the market value rule in TCGA 1992 section 17 applies to a distribution of assets by a company to its shareholders, so the company is treated as disposing of the asset for its market value. Any chargeable gain falls into the company's corporation tax computation for the period, even though no cash has come in to pay the tax.

At shareholder level, a UK-resident individual is taxed on the distribution as dividend income. GOV.UK at https://www.gov.uk/tax-on-dividends shows a £500 dividend allowance and, for 6 April 2026 to 5 April 2027, dividend rates of 10.75% basic, 35.75% higher and 39.35% additional. The shareholder's UK acquisition cost of the asset for later capital gains purposes is also governed by the market value rule, so the UK base cost is broadly the value that was taxed as a dividend.

Company law: the dividend must be covered by distributable profits, usually declared at book value.
Company tax: a deemed disposal at market value, with any chargeable gain charged to corporation tax.
Shareholder tax: dividend income measured at market value, taxed at UK dividend rates after the allowance.
Shareholder base cost: market value at the date of the distribution, for any later UK capital gains computation.
Side issues: where the shareholder takes on a mortgage secured on distributed land, assumed debt can count as consideration for stamp duty land tax, so the transfer documents need review before completion.

How does the US treat a property distribution from a UK controlled foreign corporation?

The US framework runs in parallel but uses different sections. Internal Revenue Code section 301(b)(1) measures the amount of a distribution as money received plus the fair market value of other property received, and section 301(b)(3) fixes that value as of the date of the distribution. Section 301(c) then splits the amount: the part that is a dividend out of earnings and profits is included in gross income, the balance reduces the shareholder's basis in the company's shares, and anything beyond that basis is treated as gain. Section 301(d) gives the shareholder a basis in the distributed property equal to its fair market value.

At company level, section 311(b)(1) requires a corporation that distributes appreciated property to recognize gain as if the property were sold to the shareholder at fair market value. Although the UK company is not a US taxpayer, US shareholders of a controlled foreign corporation must compute its earnings and profits under US principles, so the section 311(b) gain increases current-year earnings and profits and, depending on the asset, can be subpart F income or tested income. A gain on investment property or shares held as investments is the type of income that often falls into the foreign personal holding company income rules, while a gain on an asset used in an active trade may instead feed tested income. The character is fact-specific, and UK corporation tax rates can make the elective high-tax exception available, so this is a point to work through before the return is drafted rather than after.

The failure mode we see most often is this: the UK statutory accounts record the dividend at book value, so no profit on the asset ever passes through the profit and loss account, and the US earnings and profits computation built from those accounts silently omits the section 311(b) gain. The fix is an explicit adjustment in the US earnings and profits workpapers, supported by the valuation.

In what order does the distribution come out of PTEP and untaxed earnings?

Section 959 governs previously taxed earnings and profits, known as PTEP. The Form 5471 instructions at https://www.irs.gov/instructions/i5471 state that an actual distribution is first out of PTEP, if any, and then out of the section 959(c)(3) balance, which is earnings and profits that have not been included in a US shareholder's income under section 951(a)(1) or section 951A. The PTEP portion is not taxed again as a dividend, but a foreign currency gain or loss under section 986(c) can arise on it and is reported through Schedule I, line 6. The section 959(c)(3) portion is a taxable dividend under section 301(c)(1). Individual shareholders cannot use the section 245A deduction, which is limited to domestic corporations, so for a US citizen shareholder the untaxed portion is ordinary dividend income, subject to any qualified dividend treatment the company is eligible for and to the foreign tax credit for UK tax paid on it.

Timing interacts with ordering. If the section 311(b) gain is itself subpart F income or tested income that the shareholder includes for the same year, that inclusion creates PTEP, and the in-specie distribution then comes out of that new PTEP first. If the gain is excluded, for example under a valid high-tax election, it stays in the section 959(c)(3) pool and the distribution of it is a taxable dividend. Either way, the same economic value is taxed in the US once, but the line on the return and the foreign tax credit basket change.

Which Form 5471 schedules report a dividend in specie?

Form 5471 is the information return a US person files with respect to certain foreign corporations, and a US citizen who owns all of a UK company is typically both a Category 4 filer, meaning a US person who controls the company, and a Category 5a filer, meaning a US shareholder of a controlled foreign corporation. The instructions say that if you satisfy the requirements of both Category 4 and Category 5a, you check only the box for Category 4 and leave Category 5a blank, while still completing every schedule that applies to either category. For a sole owner of a CFC the instructions list all six pages of the form plus separate Schedules E, G-1, H, H-1, I-1, J, M, P, Q and R. Remember too that the old rule requiring a foreign corporation to be a CFC for an uninterrupted 30 days before subpart F applied was removed by the 2017 tax act, so a short period of control in the year of the distribution does not take you outside the rules.

Schedule R reports the distribution itself. Column (a) describes it, including whether it was cash or noncash and taxable or nontaxable, using Code sections; column (b) gives the date in MM-DD-YYYY format; column (c) gives the amount in the company's functional currency; and column (d) gives the amount that is a distribution of earnings and profits. Partly taxable distributions are split across separate rows, and for noncash distributions a statement must be attached showing both the tax bases and the fair market values.
Schedule J reports accumulated earnings and profits in functional currency, split by separate category of income, with actual distributions shown as negative numbers on line 9. The instructions tie Schedule R column (d) to Schedule J line 9.
Schedule P reports PTEP in the shareholder's annual PTEP accounts in functional currency in Part I and the shareholder's US dollar basis in that PTEP in Part II, and Schedule R column (d) also flows to Schedule P Part I, line 8.
Schedule C is the income statement prepared under US GAAP principles, and Schedule H converts accounting profit into current-year earnings and profits in functional currency, which is where the section 311(b) gain adjustment belongs if the UK accounts do not show it.
Schedule M, required of Category 4 filers, reports transactions between the company and related persons, translated at the average exchange rate for the year. Lines 10 and 25 cover dividends received and paid that were not previously taxed under subpart F, and lines 14 and 29 cover other amounts, with a supporting statement.
Schedule I, line 6 picks up any section 986(c) foreign currency gain or loss on a distribution of PTEP.

Schedule R column (c) follows section 301: money plus the fair market value of property, reduced (but not below zero) by any company liability the shareholder assumes and any liability the property is subject to immediately before and after the distribution. A flat transferred subject to its mortgage therefore produces a smaller Schedule R amount than the gross valuation, and the attached statement should show the liability netting so the numbers reconcile to the valuation report.

How is the distributed asset translated into US dollars?

Section 989(b)(1) provides that an actual distribution of earnings and profits is translated at the spot rate on the date the distribution is included in income. For an in-specie dividend that means the sterling market value on the distribution date is converted at that day's spot rate to give the dollar dividend on the individual return, and the same dollar figure becomes the US basis in the asset. Schedule R itself is completed in functional currency, while Schedule M is translated at the average rate for the year, so the dollar figures on Schedule M and on the Form 1040 will not match, and they are not supposed to. The instructions require every exchange rate on Form 5471 to be reported using the divide-by convention, rounded to at least four places, which for sterling means pounds per dollar, not dollars per pound.

For PTEP, section 986(c) measures foreign currency gain or loss between the rates used when the PTEP was created and the spot rate on distribution. In a year when sterling has moved sharply against the dollar, that currency result can be significant even though no cash changed hands.

Worked scenario: a London investment company distributes a flat

The figures below are an illustration only, with assumed values, an assumed exchange rate and simplifying assumptions. They show the mechanics, not a computation for any real taxpayer.

Assume Claire is a US citizen living in London who owns 100% of a UK investment company with a December year end and sterling functional currency. The company owns a rental flat carried in its accounts at £400,000. On 30 June 2026 the board declares a dividend in specie of the flat, supported by a professional valuation of £1,000,000, with no mortgage attached. Assume a spot rate of £1 = $1.30 on that date, which is 0.7692 pounds per dollar under the divide-by convention. Assume the company has £200,000 of PTEP from earlier inclusions, and that after the distribution year's results, including the gain, it has more than enough section 959(c)(3) earnings to cover the rest of the distribution.

UK company: deemed disposal at £1,000,000 against a base cost of £400,000 gives a £600,000 chargeable gain before reliefs and costs; at an assumed 25% main rate that is illustratively £150,000 of corporation tax.
UK shareholder: dividend income of £1,000,000, being the £400,000 declared amount plus the £600,000 excess of market value; assuming Claire's other income already places her in the additional-rate band, tax after the £500 allowance is roughly £393,300.
US company level: a section 311(b) gain of £600,000 increases the company's earnings and profits, reduced by the UK tax on it; for illustration assume the gain is excluded from subpart F and tested income under a valid high-tax election.
US shareholder: a distribution of £1,000,000, or $1,300,000 at the assumed spot rate. The first £200,000 is PTEP and not taxed again, subject to any section 986(c) currency result; the remaining £800,000, or $1,040,000, is a section 301(c)(1) dividend, against which UK tax on that dividend can be claimed as a foreign tax credit.
Schedule R: row one describes a noncash nontaxable distribution of PTEP under section 959(a), date 06-30-2026, £200,000 in columns (c) and (d); row two describes a noncash taxable dividend under section 301(c)(1), same date, £800,000 in columns (c) and (d); a statement attaches showing the company's tax basis of £400,000 and the fair market value of £1,000,000.
Basis: Claire's US basis in the flat is $1,300,000 under section 301(d), and her UK base cost is £1,000,000.

Because Claire is both Category 4 and Category 5a, she checks Category 4 only, completes Schedules J and P so that the £1,000,000 appears as a negative distribution on Schedule J line 9 and moves through her PTEP accounts on Schedule P, and completes Schedule M on the average-rate basis. Her Schedule H carries the £600,000 gain adjustment, because the UK accounts recorded the dividend at £400,000 and never showed a profit on the flat.

What happens when the shareholder later sells the distributed asset?

This is the gap most guides skip. After the dividend, the shareholder owns the asset personally with two different starting points: a US dollar basis fixed at the distribution date and a sterling UK base cost. Continuing the illustration, suppose Claire sells the flat two years later for £1,050,000 when the assumed rate is £1 = $1.20. For UK purposes she has a £50,000 gain before costs and any reliefs. For US purposes the proceeds are $1,260,000 against a basis of $1,300,000, which is a $40,000 capital loss before any adjustment for depreciation claimed on the rental after receipt. The sterling value rose, yet the dollar result is a loss, purely because of exchange movements.

The reverse can also happen: a flat sale that is roughly break-even in sterling can produce a US gain if the pound has strengthened. Because the UK and US gains are computed in different currencies from different starting figures, the foreign tax credit on the sale needs its own computation rather than assuming the UK tax simply covers the US liability. Keep the distribution-date valuation, the spot rate used and the Schedule R statement in the permanent file, since they are the evidence for the US basis years later.

What valuation evidence should support the distribution?

Both tax authorities start from market value on the distribution date, so one well-documented valuation can support both returns. For land and buildings that normally means a report from a qualified surveyor dated at or near the distribution date. For unquoted shares it means a valuation that addresses the rights attached to the holding and any discounts. HMRC offers a post-transaction valuation check for capital gains through form CG34, available at https://www.gov.uk/government/publications/sav-post-transaction-valuation-checks-for-capital-gains-cg34, which companies can use for corporation tax and individuals for capital gains tax, and HMRC says the application should be made at least three months before the relevant return filing date.

Obtain the valuation before the board meeting, and date it as close to the distribution as possible.
Record the valuation, the declared amount and any liabilities transferred in the board minutes and the dividend documentation.
Use the same market value for the UK corporation tax return, the UK self assessment dividend figure and the US section 301 amount, unless there is a documented reason for a difference.
Retain the spot rate source used for the US dollar translation alongside the valuation.
Attach the tax basis and fair market value statement that the Schedule R instructions require for noncash distributions.

What if the UK company distributes shares in a subsidiary as a demerger?

A common variant is a UK holding company distributing the shares of a trading or property subsidiary directly to its shareholders, often to separate businesses before a sale. In the UK this can fall within the statutory demerger rules, which can take the distribution out of the income tax charge if their conditions are met, or it can be structured through a liquidation or reduction of capital. In the US, section 355 can allow a distribution of a controlled subsidiary's stock without gain or dividend to the shareholder, but only if a demanding set of requirements is satisfied, including active trade or business, business purpose and the rule that the transaction is not a device for distributing earnings. The section 367(b) regulations can also apply to exchanges involving foreign corporations.

If section 355 does not apply, the US treatment defaults to a section 301 distribution of the subsidiary's shares at fair market value with a section 311(b) gain at the distributing company, which is exactly the result the UK demerger was designed to avoid. On the Form 5471 side, the shareholder may now hold the former subsidiary directly, which can create a new Form 5471 filing for that company and Schedule O reporting of the acquisition of its stock. A UK demerger that works perfectly for HMRC can be fully taxable in the US, so the US analysis must be done before the UK clearance application, not after.

How do you fix a missed Form 5471 for a dividend in specie year?

The Form 5471 penalty under section 6038 is $10,000 for each annual accounting period of each foreign corporation for failure to file on time, with an additional $10,000 for each 30-day period, or part of one, that the failure continues more than 90 days after an IRS notice, up to a further $50,000, plus a possible reduction in foreign tax credits. Those figures are stated in the penalty section of the instructions at https://www.irs.gov/instructions/i5471 and summarised at https://www.irs.gov/payments/international-information-reporting-penalties. Separately, under section 6501(c)(8) the assessment period for a return that should have included a Form 5471 generally stays open until the information is furnished, so the year of the distribution does not quietly close.

For US persons living in the UK whose failures were non-willful, the Streamlined Foreign Offshore Procedures at https://www.irs.gov/individuals/international-taxpayers/us-taxpayers-residing-outside-the-united-states require delinquent or amended returns for the most recent three years with all required information returns, including Form 5471, FBARs for the most recent six years, and a Form 14653 certification. The IRS states that eligible taxpayers who follow the procedures will not be subject to failure-to-file, failure-to-pay, accuracy-related, information return or FBAR penalties. Where all income was reported and only the information return is missing, the Delinquent International Information Return Submission Procedures at https://www.irs.gov/individuals/international-taxpayers/delinquent-international-information-return-submission-procedures allow late filing with a reasonable cause statement, but the IRS notes that penalties may be assessed without considering that statement. An in-specie year is rarely a pure information-return failure, because the section 301 dividend or the section 311(b) inclusion usually changes US tax, which points towards the streamlined route. For late FBARs, filing is through FinCEN's BSA E-Filing System at https://bsaefiling.fincen.treas.gov with a reason for late filing, or as part of the streamlined submission.

Practical checklist before the board declares the dividend

Confirm distributable reserves under UK company law and the declared amount in the board resolution.
Obtain an independent valuation dated at the distribution date.
Model the UK corporation tax on the deemed disposal and the shareholder's UK dividend tax.
Model the US section 311(b) gain, its subpart F or tested income character and any high-tax election.
Map the company's PTEP accounts so the section 959 ordering is known in advance.
Record the spot rate on the distribution date and diarise the Form 5471 schedules: R, J, P, C, H, M and I.
For a demerger, test section 355 before any UK clearance application.

A dividend in specie is one decision with at least five tax consequences across two countries, and the Form 5471 that reports it is where the IRS will look first. Getting the valuation, the section 311(b) adjustment, the PTEP ordering and the currency translation right in the year of the distribution is far cheaper than reconstructing them later under the penalty regime.