INTM164350 - UK residents with foreign income or gains: dividends

Unilateral relief - direct tax

ICTA88/S790 (5)(c)

Allow unilateral relief to portfolio shareholders and direct investors for direct tax charged on a dividend. See the glossary at INTM164010 for the meaning of these terms.

ICTA88/S790 (5)(c)(i) allows tax credit relief to a portfolio shareholder only where the foreign tax is directly charged on the dividend and the whole of such tax represents tax which neither the company nor the recipient would have borne if the dividend had not been paid.

Although the foreign tax deducted from a dividend may have the appearance of being directly charged on the dividend and therefore available for credit, it may be tax which is excluded from credit because of the words in italics above: it in fact represents the paying company's tax on its profits. Tax deducted from dividends paid by Guernsey, Jersey and Isle of Man companies is of this kind. Credit relief is not due but the foreign tax may instead be deducted under ICTA88/S811 in arriving at the amount chargeable to United Kingdom tax.