UK Income Tax Dividend Credit Expanded

December 24, 2009 Taxation in UK

Day 62On December 18th, the UK’s HM Revenue & Customs released a brief Changes to the Income Tax Credit for Foreign Dividends. The changes will affect shareholders in offshore funds and in foreign companies with holdings of 10 or more percent of issued share capital, with more taxpayers now eligible for dividend tax credits.

Shareholders in offshore funds will be evaluated by whether they have holdings in equity based funds, or those heavily invested in interest bearing assets. Individuals with receiving distributions from equity based funds will now be entitled to dividend tax credits. Distributions from funds with over 60 percent of their assets being interest bearing, will be recognized as interest distributions and taxed accordingly.

The dividend tax credit has been extended to cover shareholders with 10 or more percent of the issued share capital in a foreign company. As long as the distributions are derived within a “qualifying territory”, are not from an “excluded” company and are not part of a tax avoidance scheme, the recipients will be entitled to dividend tax credits. Qualifying territories have been defined as a jurisdiction with which the UK holds a Double Taxation Agreement with a non-discrimination article.

The brief confirmed that there will be no changes to existing foreign tax credit relief in regards to foreign withholding tax, and that individuals can receive benefits of the existing scheme alongside the newly extended foreign dividend tax credit.

The changes detailed in the brief are scheduled to take effect retrospectively from April 22nd, 2009, but within the current fiscal end of year reporting.

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