INTM602520 - Transfer of assets abroad: Other general provisions: Deductions and reliefs

Where an individual is subject to the income charge, the same deductions and reliefs are allowable as would have been allowed if the income treated as arising were actually received by the individual. The legislation is at ITA07/S746.

The reference is to deductions after the amount of the income charge has been calculated. The parameters for calculating the amount of the income charge itself by reference to the income of the person abroad are at INTM601100.

Before the year 2016-2017, if the income of the person abroad was UK source dividends, the dividends would have to be grossed up before allocating the tax credit.

For years up to and including 1998-1999, the recipient of the distribution was entitled to a tax credit equal to such proportion of the amount or value of the distribution as corresponded to the rate of advance corporation tax in force for the financial year in which the distribution was made.

Dividends for subsequent years carry a notional tax credit. This treatment would not normally apply to non-resident shareholders, but if the income is notionally treated (for example under the income charge provisions) as that of a UK resident, the same consequences follow as for an actual recipient.

Where foreign source dividends comprise the income of the person abroad there would not normally be a tax credit available. However, from 2008-2009, ITTOIA05/S397A provided for tax credits in respect of distributions from non-UK resident companies. Where the distributions are treated under any of the provisions of the Taxes Acts as the income of a person other than the recipient, then that person is treated as receiving it. This means that the income charge under the transfer of assets provisions will be in point. A tax credit of one-ninth of the amount or value of the grossed-up distribution is available to persons holding less than 10% of the share capital of the company concerned and subject to certain other conditions within that legislation.

ITTOIA05/S397A was repealed by Finance Act of 2016 with effect from the tax year 2016-2017.

From 2016-2017, a tax-free dividend allowance was introduced for UK residents in respect of dividend income, replacing the dividend tax credit. Therefore, grossing up no longer applies.

Where the income of a foreign company has been subject to the income charge and subsequent dividend left out of account, it may be that the dividend is charged to tax by a UK paying agent such as a bank, before being paid to the individual concerned. If this is the case relief should be given for that tax or repayment made, whichever is appropriate.

As far as the benefits charge is concerned, no tax credits are available either in respect of UK or of foreign source dividends of a person abroad. However, the amount of relevant income will be the net dividend after any tax charge.