SAIM5100 - Dividends and other company distributions: tax credits on qualifying distributions
Tax credits: qualifying distributions
Tax credits attach to qualifying distributions from companies
resident in the United Kingdom which are made either to residents
of the United Kingdom or to certain non-UK resident persons. The
ITTOIA05 legislation applies to both UK resident and non-UK
resident recipients who are entitled to tax credits.
Most distributions of companies resident in the United
Kingdom are ‘qualifying distributions’. Only the issue
of redeemable share capital (unless that share capital is taxed
under the stock dividends legislation) or the issue of securities
in respect of shares or securities of a company otherwise than
wholly for new consideration, are non-qualifying distributions (
SAIM5050).
Under ITTOIA05/S397, UK residents and eligible non-UK
residents are entitled to a tax credit equal to one ninth of the
amount or value of the distribution. Eligible non-UK residents are
defined in ICTA88/S278 (2) (Commonwealth citizens, EEA nationals,
etc.).
The person may claim to deduct the tax credit from the total
income for the tax year for which the distribution is made, or the
income tax charged at basic rates under ICTA88/S3 on annuities,
annual payments or royalties. The non-UK resident has only to fall
into the relevant category ‘at any time’ in the tax
year, not necessarily throughout the tax year.
ITTOIA05/S397 (3) treats the tax credits attaching to
qualifying distributions as reduced if those distributions are not
brought into charge to tax. So, for example, if an individual's
total income is reduced by deductions (for example, personal
allowances) such that the qualifying distributions are not, or are
not wholly, brought into charge to tax, the value of the tax
credits attaching to those distributions are correspondingly
reduced. So a person may be entitled to a tax credit whose value is
nil.
ITTOIA05/S397 (5) makes it clear that if a person other than
the recipient of the distribution is treated as receiving the
distribution, that person is entitled to the tax credit.
The rules in ITTOIA05/S397 are subject to a number of rules
which deny tax credits in certain cases. These are
- ICTA88/S231AA (stock lending or repos – CFM17150)
- ICTA88/S231AB (manufactured dividends – CFM17300)
- ICTA88/S469 (2A) (certain types of unit trust – CTM48000)
- FA93/S171 (2B) (Lloyd’s premium trust fund assets – LLM1190).
( SAIM20000).
Increase in amount or value of dividends where tax credit available
ITTOIA05/S398 treats the amount of the dividend or distribution as increased by the amount of the tax credit. It applies for all income tax purposes including the case where the recipient of the distribution is a member of Lloyd's. But the section does not apply if the recipient of the distribution is a dealer (in which case only the net amount of the distribution is taken into account in calculating the profits of the dealer).
