INTM164300 - UK residents with foreign income or gains: dividends

Dividends received by UK companies on or after 31 March 2001 - dividends barred from on-shore pools

INTM164270 explained that a dividend that has given rise to eligible unrelieved foreign tax will not be a qualifying foreign dividend. It cannot therefore join an on-shore pool and absorb eligible unrelieved foreign tax from other dividends.

Where low-taxed dividends have been mixed with high-taxed ones through a mixer. the resultant case V dividend cannot be split to enable the low-taxed elements to be a Qualifying Foreign Dividend. This is a particular problem where a relatively small amount of high taxed income is mixed with a large amount of low taxed income.

FA2001 amended ICTA88/S799 to provide that in such a circumstance a company may claim only part of the foreign tax paid in respect of the Case V dividend. In the above example, the UK company would claim only 30 of the 31 tax paid on H. This means that the Case V dividend will not give rise to EUFT and it can become a qualifying foreign dividend and join the onshore pool.

Tax that is not claimed for credit relief under S799 in this way cannot be claimed as a deduction. It is lost forever.

Under ICTA88/S795 the amount disclaimed must still be taken into account when calculating the total amount assessable under Case V of Schedule D.

Underlying Tax Group, Nottingham will calculate the rates of underlying tax for both Case V and credit purposes if a partial claim is made. Inspectors will need to ensure that any amounts of foreign tax claimed as a deduction have not been left out of account for credit under a partial claim.