From 6 April 1999 the recipient of a manufactured dividend is treated for all purposes of the Tax Acts as if it had received a dividend on the UK shares concerned.
The payer, if a UK company, is treated as making a payment of one of its own dividends. This means that the payer cannot obtain a deduction for the payments unless the conditions in ICTA88/S95 (ITTOIA 2005 section 366(1)) relating to financial traders are satisfied. Non- resident companies trading in the UK through a permanent establishment get similar treatment and are therefore denied a deduction for the manufactured payment unless section 95 (366 of ITTOIA) applies.
Where a non-corporate pays a manufactured payment in respect of
UK shares the payment will, so far as not otherwise deductible (for
instance where the person is a financial trader), qualify for
relief against net income to the extent that equivalent taxable
amounts are also brought into account (ITA07/S574 and S575).
A manufactured payment in respect of UK shares made on or
after 31 January 2008 will not be deductible if it is paid, or any
part of it is paid, in consequence of or otherwise in connection
with avoidance arrangements. This means that S575 and parts of S574
are repealed in relation to manufactured payments made on or after
that date. However, if a manufactured dividend is paid by an
individual in connection with transactions that produce a capital
gain then TCGA92/s263D will continue to apply.
