SAIM5104 | Dividends and other company distributions: tax credits on foreign distributions: what were ‘relevant distributions’: tax years up to 2015-16

Tax Credits: foreign distributions: tax years up to 2015-16

Most distributions of non-UK resident companies were ‘relevant distributions’. These comprised:

• Distributions analogous to qualifying distributions made by a UK resident company, which arose in the tax year 2008-09 or subsequently:

• Cash dividends paid over under an approved share incentive plan under ITEPA03/SCH2/PARA68 (4):

• Dividend payments treated under ITTOIA05/S407 as paid when dividend shares ceased to be subject to an approved share incentive plan.

UK residents and eligible non-UK residents were entitled to a tax credit equal to one ninth of the amount or value of the distribution increased by the amount of any withholding tax or special withholding tax chargeable (‘the grossed up distribution’). Eligible non-UK residents were those who met the condition in ITA07/S56 (3) - residence etc. of claimants.

The person could claim to deduct the tax credit from the income tax charged on their total income for the tax year in which the distribution was brought into charge to tax. However, due to the requirement that the distribution must have arisen in the tax year 2008-09 or subsequently, a person taxed on the remittance basis would not get a tax credit for earlier year dividends remitted to the UK on or after 6 April 2008.

As with tax credits on UK qualifying distributions (SAIM5100):

• ITTOIA05/S397A(3) treated the tax credits as reduced if those distributions were not brought into charge to tax, and a person might have been entitled to a tax credit whose value was nil;

• ITTOIA05/S397A (5) made it clear that if a person other than the recipient of the distribution was treated as receiving the distribution, that person was entitled to the tax credit;

• there were special rules to deny tax credits in the case of stock lending (or repos), certain types of unit trust, and Lloyd’s premium trust fund assets;

• ITTOIA05/S398 treated the amount of the dividend or distribution as increased by the amount of the tax credit, but not if the recipient of the distribution was a financial trader (excluding Lloyd’s members).

For manufactured overseas dividends (MODS) received before 1 January 2014, under ITTOIA05/S397B ‘relevant distributions’ carrying an entitlement to tax credits under S397A included MODs, but only if the MOD was representative of a distribution made by a non-resident company. MODs that were representative of interest paid by a non-resident company did not carry an entitlement to tax credits under s397A. See CFM74360 onwards for more information on MODs.

For MODs received on or after 1 January 2014 there was no entitlement to tax credits under S397A in respect of any manufactured payment (ITA 2007/PART11ZA/S614ZD (6)).