INTM164480 | UK residents with foreign income or gains: dividends: Determination of rates of foreign underlying tax - Case V computations - dividends received on or after 31 March 2001 with withholding tax
From HM Revenue & Customs · International Manual
The legislation relating to EUFT was repealed for distributions paid on or after 1 July 2009.
Example
An Officer has referred a dividend to the Underlying Tax Group (UTG) under INTM164440. The cash dividend received was 90, as 10% withholding tax was deducted on payment. The rate of corporation tax for the year is 30% and the “upper rate percentage” is 45%. In accordance with INTM164460 the UTG supplies the following:
| Dividend | 100 |
| Actual rate of underlying tax | 42% |
| Capped rate of underlying tax | 27% |
| Amount of Eligible Unrelieved Foreign Tax | 18 |
| Foreign Income computation: | Dividend (90 + 10) | 100.00 |
| - | plus underlying tax: 100/58 x 42 | 72.00 |
| - | - | 172.00 |
| - | Tax at 30% | 51.60 |
| - | To calculate the foreign tax credit, apply the capped rate to the dividend: 100/73 x 27 | 36.99 |
| - | Net UK liability | 14.61 |
The Case B EUFT notified by the UTG of 18 is all underlying tax.
But there is also a further amount of Case A EUFT (see INTM164250) of 10 in respect of the withholding tax:
| CT due if the CT rate were 45%, the ‘upper percentage’ - 172 x 45% | 77.40 |
| Credit available: | - |
| Underlying tax as capped | 36.99 |
| Withholding tax | 10.00 |
| Amount that would be creditable | 46.99 |
| Amount actually credited | 36.99 |
| Case A EUFT | 10.00 |
The total of 28 EUFT can be used against pooled dividends (see INTM164270)
The underlying tax element can be used only against the Single Related Qualifying Dividend: the withholding tax element can be used against either of the Single Related or Unrelated Dividend.